‘Declaration of war?’ Citadel’s anti‑DeFi stance sparks outrage

Citadel Securities, the world’s largest market maker, has elicited backlash from a section of the crypto leaders following its stance on DeFi platforms. 

In a letter to the U.S. Securities and Exchange Commission (SEC), the firm welcomed tokenized equities and blockchain rails as ‘innovation’ that could improve market functions like clearing, settlement efficiency, and investors’ choices. 

However, Citadel maintained that DeFi platforms must adhere to similar rules applied to traditional exchanges if they are to handle tokenized stocks and ETFs. 

It added that if DeFi platforms are exempted from oversight, 

“It would severely undermine the regulatory framework designed to protect investors and safeguard market integrity and resiliency.”

Source: Citadel Securities 

Put differently, Citadel is advocating for DeFi platforms, including liquidity providers and routing apps like Jupiter, as well as others, to be subject to the same transparency and reporting obligations that apply to traditional players. 

Any exemption as pushed by DeFi supporters, Citadel argued, “would be inconsistent with the Commission’s statutory authority.”

But the crypto community didn’t take the market makers’ letter lightly. 

DeFi supporters slam Citadel

Hayden Adams, CEO and founder of Uniswap, one of the largest DeFi platforms on Ethereum, accused Citadel and its CEO, Ken Griffin, of behind-the-scenes lobbying against the sector. Adams added, 

“Makes sense the king of shady tradfi market makers doesn’t like open source, peer-to-peer tech that can lower the barrier to liquidity creation.”

Source: X

For perspective, Citadel acts as an intermediary between most retail platforms like Robinhood and main markets like Nasdaq. As such, tokenized equities that settle on-chain, to some extent, can be viewed as a threat to its business model. 

At the same time, even on-chain investors deserve investor protections that can only be achieved via transparency. 

However, other Citadel critics viewed its stance as a ‘declaration of war on project crypto.’ 

For Jerk Chervinsky, CLO at crypto venture capital Variant Fund, Citadel’s ‘attack’ was expected, given DeFi’s threat to its business model. He posed, 

“Whoever thought Citadel would be against innovation that removes predatory, rent-seeking intermediaries from the financial system? Oh, right, literally every single person in crypto.”

Impact on the crypto bill?

Unsurprisingly, Citadel’s take mirrored broader traditional players’ stance, as recently echoed by its umbrella body, World Federation of Exchanges (WFE). This could further complicate DeFi regulation and the crypto market structure bill. 

In fact, a DeFi legislation proposal nearly stalled the bill in October. And a recently released draft on the same was opposed by most DeFi supporters as ‘non safe’ for sector players.

It remains to be seen how the agency will balance DeFi regulation amid strongly divided factions fighting for different interests. 

Final Thoughts

• Citadel is strongly opposed to DeFi platforms being exempt from reporting and transparency obligations while handling tokenized equities.  
• However, the Citadel’s ‘attack’ was due to the perceived DeFi threat to its business model.