The Blockchain Association has formally challenged a call from Citadel Securities and Wall Street groups to regulate decentralized finance (DeFi) protocols. In a letter to the U.S. SEC, the industry lobby argued that neutral blockchain infrastructure should not automatically be classified as an exchange or broker simply because it handles tokenized securities. The group asserts the DeFi sector is not seeking a “free pass” but is asking regulators to consider how the underlying technology functions before applying rules.
The DeFi sector is intensifying its pushback against a Citadel-led call to bar decentralized protocols from blanket regulatory exemption. In a letter to the U.S. SEC, the Blockchain Association termed the proposed regulation of DeFi protocols handling tokenized assets as a “wrong approach.”
The lobby group rebutted the traditional finance stance directly. “Securities laws regulate intermediaries. They do not automatically turn neutral infrastructure into an exchange, broker, or dealer simply because that infrastructure is part of a tokenized market,” the letter stated.
It added that the industry is not asking for special treatment for tokenized securities, which remain securities under the law. “The digital asset industry is not asking for a free pass. Tokenized securities are still securities. The question is whether the SEC will apply the law in a way that reflects how modern infrastructure actually works,” the association wrote.
Citadel and the Securities Industry and Financial Markets Association (SIFMA) advocate for a level playing field through a “neutral technology” framework. They argue every platform handling tokenized securities must be under oversight, regardless of whether it is custodial or decentralized.
According to critics of a proposed innovation exemption, investor protections in the DeFi world can only be ensured by regulations. Last week, another crypto lobby, the DeFi Education Fund (DEF), also castigated SIFMA and Citadel’s call for regulating automated market makers.
It remains to be seen which regulatory route the SEC will ultimately take. Any rulemaking or guidelines related to DeFi exemptions that are not codified via the CLARITY Act could still be disputed in court.
