The Blockchain Association has officially submitted a response to the U.S. Securities and Exchange Commission (SEC), publicly challenging the regulatory stance on decentralized finance (DeFi) recently put forward by market-making giant Citadel Securities.
Last December, Citadel Securities argued in a letter to the SEC that many DeFi protocols, by using algorithms and other non-discretionary methods to match buyers and sellers, essentially function as "exchanges." At the time, the firm urged regulators to enforce stricter standards rather than offering any form of regulatory relief.
In its latest response, the Blockchain Association rejected this position. The organization argued that DeFi protocol developers are neither brokers nor dealers, nor do they operate exchanges in the traditional sense; therefore, they cannot be forced into a legal framework designed specifically for human intermediaries.
"The Blockchain Association respectfully urges the Commission to continue its work on an innovation exemption framework led by Chair Paul Atkins," the association stated in the letter. "The Commission should look to its historical approach to fintech innovation and provide exemptions for the trading of tokenized securities."
The Battle Over Regulatory Boundaries
SEC Chair Paul Atkins has already signaled that the agency will soon solicit public comment on a series of rulemakings, including an innovation exemption program that could serve as a "regulatory sandbox" for on-chain assets. As the tokenization of financial assets accelerates, the question of where traditional securities law ends and decentralized protocols begin has become a central point of contention.
Representing over 100 member organizations—including Coinbase, Circle, and Mysten Labs—the Blockchain Association emphasized that current securities laws were designed to regulate intermediaries, not neutral, distributed infrastructure.
"Validators, automated smart contracts, non-custodial software, and other blockchain-based tools do not automatically transform into regulated financial intermediaries simply because of the automated nature of their technology," the association stressed in its letter.
While the SEC has previously approved pilots for tokenized securities trading by institutions like Nasdaq, it has consistently maintained that these assets remain securities and must strictly adhere to existing law. As the market for tokenized finance expands, the tug-of-war over whether technical infrastructure warrants a special regulatory status continues to intensify.
