Blockchain Association, which operates in the cryptocurrency industry, questioned Citadel Securities, one of the global market makers, about the US Securities and Exchange Commission’s (SEC) approach to decentralized finance (DeFi) protocols, as the tokenization trend in financial markets accelerates. The US-based Blockchain Association carries out advocacy activities in the sector with more than 100 members, including companies such as Coinbase, Circle and Mysten Labs.
Citadel calls for tight regulation and industry objections
In its letter to the SEC at the beginning of the week, the Blockchain Association responded to Citadel Securities’ letter sent in December, requesting tighter control over DeFi protocols. Citadel defined decentralized finance protocols as structures similar to stock exchanges that match buyers and sellers through algorithms. For this reason, he requested that the SEC adopt a more comprehensive and open-to-public legislation method instead of the current exception regulation.
Blockchain Association stated that it did not agree with this opinion. The institution expressed the opinion that DeFi protocol developers should not be considered intermediaries or exchange operators, and that this does not comply with the categories legally designed for human-managed intermediary institutions.
“We think the Commission should move forward within the innovation exception that Chairman Atkins asked his staff to develop. As with previous financial technology innovations, tokenized stock transactions should also be granted an exception,” the Blockchain Association said in its statement.
Discussions on the regulatory framework from the SEC
SEC Chairman Paul Atkins had recently announced that the institution plans to collect public comments within the scope of new regulatory efforts. One of the prominent topics was the proposal to create an innovation exception for on-chain assets and could serve as a kind of regulatory test environment.
Recently, companies have been taking a closer look at tokenization technology, which allows financial assets such as shares to be traded via blockchain. This approach can make it possible to carry out transactions faster and more efficiently.
While the SEC has so far approved some platforms, such as Nasdaq, to move forward with tokenized securities, it has emphasized that such assets must still be classified as securities and remain subject to securities laws.
The Blockchain Association noted that traditional securities legislation regulates broker-dealers, but the same obligations should not apply to neutral infrastructure providers.
“Validators, smart contracts, intermediary-free software and other blockchain-based tools only provide a new financial infrastructure, so they do not turn into regulated brokerage firms,” the group said in its statement.
As developments in the DeFi space continue, the Blockchain Association emphasized that the SEC has the authority to impose exemptions as in previous examples.
The Blockchain Association argued that Citadel’s procedural request actually amounted to a delaying strategy. The association claimed that this comprehensive regulatory process would take years and that both investors and sector innovations could be disadvantaged in the meantime.
