TradFi Attack On Crypto? Ken Griffin’s Citadel Asks SEC to Tighten Rules on DeFi Protocols

Citadel Securities founded by Ken Griffin has created a controversial event after its recent letter to the U.S. Securities and Exchange Commissions. It is demanding a tighter regulation of decentralized finance (DeFi) protocols. The move has received severe criticism by leaders in the crypto industry who accuse the firm of undermining the foundation of open decentralized trading.

Citadel Claims DeFi Lacks Essential Investor Protections 

In the letter, Citadel claims that trading systems in DeFi should be regulated in a similar way as its traditional counterparts such as exchanges and broker-dealers. It states that majority of protocols act as regulated intermediaries, but they present themselves as decentralized platforms.

According to Citadel, DeFi platforms do not include mandatory investor protection mechanisms that are found in traditional markets. The company cites the issues of transparency, trading data, processing orders, and user control.

It further states that DeFi protocols introduce shadow markets for tokenized assets that are not covered by national market regulations. Citadel also issued a warning that DeFi platforms have the ability to restrict access and impose specific fees without explicitly stating it. Hence, the firm argued that these loopholes expose traders to unfair practices and market risks.

DeFi Protocols Fail Key ‘Fair Access’ Standards, Citadel Says

Also, a recent JPMorgan research note warned of Strategy’s possible removal from equity indices. Following the release of the note, the firm faced backlash from prominent Bitcoin advocates, adding to fears of a coordinated TradFi push against crypto.

One of the central claims involves the idea of “fair access.” Citadel notes that exchanges must follow clear access standards for all participants. It claims that DeFi systems do not satisfy these requirements.

The company contends that developers have the ability to update codes, modify liquidity conditions or influence transactions. The letter also cautioned that the emergence of unregistered DeFi platforms could undermine existing protections in the U.S. equity markets.

Why Industry Leaders Are Rejecting Citadel’s Claims About DeFi?

Uniswap founder Hayden Adams criticized the letter in an X post, calling the push an effort to frame open-source developers as centralized intermediaries. He said Citadel must have lobbied behind the scenes for years to convince regulators to treat DeFi as a threat to market stability.

Adams called the “fair access” argument ironic and suggested that traditional market makers may fear the growth of open peer-to-peer systems. He also mentioned that DeFi is better at reducing obstacles to liquidity generation and dependency on big trading firms.

However, the increasing interest of Citadel in crypto markets has come under the critical focus despite its criticism of the DeFi industry. The company was part of the latest Ripple funding round.

In addition, Coinbase CEO Brian Armstrong responded to the letter. He reiterated the statements of Adams and described it as concerning.