Market maker Qila Securities has recommended that when the Securities and Exchange Commission talks about tokenized stocks, crypto leads to a backlash from consumers.
Stedel Securities told the SEC in a letter on Tuesday that DeFi developers, smart contract coders, and self-custody wallet providers should not be granted “broad exemptive relief” for offering to trade tokenized U.S. equities.
It argued that defy trading platforms likely fall under the definition of “exchange” or “broker-dealer” and should be regulated under securities laws if offering tokenized stocks.
It argued that “granting broad exemption relief to facilitate tokenized share trading through the DeFi Protocol would create two separate regulatory regimes for trading the same security.” “This result would be in stark contrast to the “technology neutral” approach afforded by the Exchange Act.”
The SEC’s response to a public hearing on this issue, in which it sought feedback on how to regulate tokenized stocks, has generated considerable backlash from the crypto community and organizations advocating for innovation in the blockchain space.
Crypto Users, Blockchain Association Walks Out
“Whoever would have thought that Castle would be anti-innovation that removes the predatory, rent-seeking middleman from the financial system?” asked lawyer and Blockchain Association board member Jake Chervinsky on Thursday.
“Oh, well, literally every single person in crypto,” he added.
UniSwap founder Hayden Adams added that it makes sense that the king of dubious tradeoff market makers doesn’t like open-source, peer-to-peer tech that could lower the barrier to liquidity creation. “
“Regulating software developers as if they were financial intermediaries would harm American competitiveness, drive innovation abroad, and do nothing to advance investor protection,” said Summer Mersinger, CEO of crypto advocacy group The Blockchain Association.
“We urge the SEC to reject this overbroad and unworkable approach and instead focus on regulating the real intermediaries that stand between consumers and their assets,” he added.
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Stedel wrote to the SEC’s Crypto Task Force in July to argue that tokenized securities “must succeed by delivering real innovation and efficiency to market participants, rather than self-serving regulatory arbitrariness.”
Sefma also did not insist on defy car-out
The Securities Industry and Financial Markets Association (SIFMA), an industry trade group, issued a similar statement on Wednesday, supporting the innovation but insisting that tokenized securities should be subject to the same basic trade-FI investor protections.
He argued that recent disruptions in crypto markets, including the October flash crash, were “timely reminders of why securities regulatory frameworks have long been designed to preserve market quality and protect investors.”
In the statement, the trade group echoed a position it took in July, rejecting any SEC exemption relief for blockchain and DeFi platforms that issue tokenized assets.
In November, the World Federation of Exchanges, which represents major stock exchanges, urged the SEC to abandon its plan to grant “innovation” to crypto companies seeking to offer tokenized stocks.
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