The Blockchain Association filed a response with the SEC on April 6, 2026, directly rebutting Citadel Securities' arguments against exemptive relief for tokenized U.S. equity securities and DeFi trading protocols. The filing marks an escalation in a lobbying contest that will determine whether bl...
"While we strongly support technological innovations designed to address market inefficiencies, seeking to exploit regulatory arbitrage for 'look-a-like' securities is not innovation." — Stephen Berger, Citadel Securities
The Blockchain Association filed a response with the SEC on April 6, 2026, directly rebutting Citadel Securities' arguments against exemptive relief for tokenized U.S. equity securities and DeFi trading protocols. The filing marks an escalation in a lobbying contest that will determine whether blockchain infrastructure operators face the same regulatory obligations as brokers, dealers, and exchanges — or whether tokenized equities trade under a lighter framework.
At stake is control over the plumbing of U.S. equity markets, which average roughly $80 billion in daily notional volume across exchanges. Tokenized equities currently total approximately $963 million in aggregate value, up nearly 2,878% year-over-year, according to industry tracking data. The SEC has approved Nasdaq's rule amendment (SR-NASDAQ-2025-072) to enable tokenized trading of Russell 1000 stocks and major ETFs under a DTC pilot, and SEC Chair Paul Atkins has stated the broader innovation exemption is "weeks" away. The outcome of this regulatory fight will shape whether the $49.6 trillion U.S. retirement asset pool eventually interacts with blockchain settlement rails — and who profits from the intermediation layer.
The Blockchain Association's April 6 letter to the SEC's Crypto Task Force takes direct aim at Citadel Securities' July 2025 submission, which urged the Commission to deny broad exemptive relief for platforms trading tokenized securities. The trade group's central argument: securities laws regulate actors performing specific market functions — brokers, dealers, exchanges — not the underlying technology infrastructure.
"The Commission should understand Citadel's procedural demand for what it is: a strategy of delay," the Blockchain Association stated in the filing.
The letter argues that validators, autonomous smart contracts, non-custodial wallet software, oracle providers, and front-end developers do not become regulated intermediaries simply because they process transactions involving tokenized securities. The Association frames this as a question of statutory interpretation: the Exchange Act defines an "exchange" by function, not by the technology stack it runs on.
Blockchain Association CEO Summer Mersinger, who testified before the House Financial Services Committee in March 2026, stated: "Tokenization is about bringing better technology to the most important capital markets in the world." The Association recently launched a dedicated tokenization workstream, signaling that this fight is a long-term policy priority, not a one-off filing.
The filing also invokes the SEC's own precedent. The Commission has historically used exemptive relief under Section 36 of the Exchange Act to permit controlled experimentation — the same statutory authority now at the center of this dispute.
Citadel Securities' position, laid out in a July 21, 2025 letter to the SEC Crypto Task Force signed by Stephen Berger, rests on a straightforward principle: a tokenized share of Apple stock is still a share of Apple stock, and the rules governing its trading should not change because the settlement layer is a blockchain instead of DTC's centralized ledger.
The firm raised three specific concerns:
Liquidity fragmentation. Citadel warned that tokenized equities could "siphon liquidity away from U.S. equity markets and create new liquidity pools that are inaccessible to many U.S. equity market participants." In a market where consolidated order flow supports price discovery, parallel blockchain-based pools could widen spreads and degrade execution quality.
Vertical integration risk. The letter flagged scenarios where "vertically integrated digital asset trading venues control onboarding, pre-funding, and settlement rails on blockchains that are not interoperable with the rest of the equities markets." This is widely interpreted as a reference to Coinbase, which submitted its own exemptive relief request to the SEC in March 2025.
Regulatory arbitrage. Citadel argued that granting exemptions to crypto-native platforms while requiring incumbents to comply with the full suite of Regulation NMS, Regulation SHO, and other securities market rules creates "de facto two regulatory regimes for the same securities" — what the firm called a "shadow U.S. equity market outside the national market system."
SIFMA echoed these concerns in its own December 16, 2025 submission, arguing that any exemptions should be "narrowly drawn" and subject to notice-and-comment rulemaking.
The SEC is pursuing tokenized securities through three concurrent regulatory tracks, each at a different stage of completion.
Track 1: The Innovation Exemption. SEC Chair Paul Atkins confirmed during a House Financial Services Committee hearing that the innovation exemption — a conditional exemptive relief framework under Section 3(b) of the Exchange Act — is clearing the Office of Information and Regulatory Affairs (OIRA) within OMB. Atkins indicated the timeline as "the next few weeks." Commissioner Hester Peirce clarified that staff are working on a "narrower" version than originally proposed — limited trading of certain tokenized securities under controlled conditions.
Peirce stated: "Both groups are likely to realize that the innovation exemption is not as monumental as either faction anticipated. It would be an important step toward facilitating the integration of tokenized securities into our existing financial system, but it would not change the entire financial system overnight."
Track 2: The DTC Pilot. On December 11, 2025, the SEC Division of Trading and Markets issued a no-action letter permitting the Depository Trust Company to operate a three-year pilot tokenizing DTC-custodied assets on approved blockchains. The pilot scope is limited to highly liquid equities, widely traded ETFs, and U.S. government securities. DTC participants may elect to record security entitlements as tokens on distributed ledgers rather than exclusively on DTC's centralized ledger. Limited operations are expected in the second half of 2026.
Track 3: Exchange Rule Changes. On March 18, 2026, the SEC approved Nasdaq's rule amendment (SR-NASDAQ-2025-072) enabling tokenized trading of Russell 1000 stocks and ETFs tracking the S&P 500 and Nasdaq-100 during the DTC Pilot. Tokenized and traditional shares trade on the same order book with identical execution priority, sharing the same CUSIP and symbol. Market data feeds do not differentiate between the two forms. Amendments become effective once DTC establishes the required infrastructure, with members receiving 30 days' notice.
The mechanics of the DTC Pilot deserve scrutiny because they reveal whose model the SEC is currently favoring.
Under the pilot, tokenized shares are not new securities. They are alternative record-keeping representations of existing security entitlements held at DTC. A tokenized share of Microsoft grants the same equity interest, dividend rights, voting rights, and liquidation distribution rights as its traditional counterpart. The distinction is purely at the settlement layer: record-keeping on a distributed ledger rather than DTC's proprietary systems.
This is the approach Citadel explicitly endorses — tokenization as a settlement upgrade within existing market structure, not as a mechanism to create parallel trading venues with different rules. Nasdaq's implementation reinforces this: participants designate tokenization preferences via a flag at order entry, specifying blockchain selection and wallet address, but the order flow stays consolidated.
The pilot's constraints are significant. DTC determines settlement eligibility, not the exchange. Only pre-approved blockchain networks qualify. Securities must remain DTC-eligible throughout. The pilot has a three-year term, after which DTC would need to pursue separate rule changes for any expansion — including allowing tokenized entitlements to carry settlement value, serve as collateral, or support stablecoin-denominated distributions.
The Securities Industry and Financial Markets Association (SIFMA) submitted letters in both November and December 2025 urging caution. SIFMA's position is procedural rather than oppositional: the trade group does not argue against tokenization itself but insists that any exemptive relief must follow the Administrative Procedure Act's notice-and-comment requirements.
SIFMA's December 16 letter outlined four requirements for exemption applicants: provide detailed technical explanations of the system's role at each step of the securities-transaction lifecycle; identify specific regulatory provisions at issue; explain why compliance is infeasible; and demonstrate that proposed alternative guardrails produce equivalent investor protection outcomes.
A January 27, 2026 SEC meeting memo shows SIFMA met jointly with Cahill Gordon & Reindel LLP, Citadel LLC, and JPMorgan Chase & Co. to discuss tokenized securities policy. The meeting signals a coordinated incumbent strategy — traditional market makers, broker-dealers, and their legal counsel aligning on a framework that preserves existing market structure while permitting tokenization within it.
This coalition represents firms that collectively execute trillions of dollars in annual equity volume. Their preferred outcome is clear: tokenization should operate within Regulation NMS, not alongside it.
The economic question underlying this regulatory fight is straightforward: tokenized settlement removes intermediaries. Each intermediary removed is a revenue stream eliminated.
In the current U.S. equity market structure, value flows through a chain of entities — exchanges, market makers, clearing houses (NSCC), the depository (DTC), custodian banks, and transfer agents. Each captures a margin. The T+1 settlement cycle, implemented in May 2024, compressed but did not eliminate these layers.
Blockchain-based settlement can theoretically reduce this to near-atomic settlement — trade execution and ownership transfer in a single transaction, without clearing or depository intermediation. If tokenized equities scale to meaningful volume, the entities in the middle of today's settlement chain face margin compression or disintermediation.
This explains Citadel's concern about "vertically integrated digital asset trading venues." A platform that controls listing, order matching, clearing, and settlement on its own blockchain captures the full value chain — the same vertical integration that traditional market structure rules were designed to prevent through separation of functions.
The Blockchain Association's counter-argument is that decentralized infrastructure is not vertically integrated because no single entity controls it. Validators process transactions for fees; smart contracts execute autonomously; wallet software is non-custodial. Whether regulators accept this characterization will determine whether a new class of infrastructure operators emerges to compete with incumbents, or whether tokenization is absorbed into existing structures.
The current data suggests the market remains small. Tokenized equities total roughly $963 million against U.S. equity markets averaging approximately $80 billion in daily notional trading. LBank's xStocks platform, the largest centralized venue for tokenized equities, maintains daily trading volume exceeding $25 million. These figures are rounding errors relative to traditional equity markets. The fight is not about today's volume — it is about the regulatory precedent that will govern tomorrow's.
The Blockchain Association-Citadel dispute is a proxy fight over who controls the settlement layer of U.S. equity markets. Citadel and its allies want tokenization deployed inside existing market structure — a technology upgrade that preserves the current intermediation chain. The Blockchain Association wants blockchain infrastructure treated as neutral technology, not as a regulated intermediary — an interpretation that would allow new entrants to compete with incumbents on settlement, custody, and clearing functions without obtaining full broker-dealer or exchange registrations.
The SEC's current trajectory — a narrow innovation exemption, a time-limited DTC pilot, and Nasdaq rules that keep tokenized shares on the same order book — favors the incumbent model. The question is whether that framework holds as tokenized volume grows and the economic pressure to reduce settlement costs intensifies. The regulatory architecture built in the next 12 months will determine whether tokenized equities become a feature of existing market structure or the foundation for a parallel one.