Market maker Citadel Securities recommended that the Securities and Exchange Commission tighten regulations on decentralized finance when it comes to token stocks, causing a backlash from cryptocurrency users.

Citadel Securities told the Securities and Exchange Commission in a letter on Tuesday that decentralized finance developers, smart contract programmers, and providers of self-custodial wallets should not be granted a “broad exemption relief” to offer token trading in U.S. stocks.

It argued that DeFi trading platforms would likely fall under the definitions of “exchange” or “broker-dealer” and should be regulated under securities laws if they offer tokenized shares.

“Granting a broad exemption to facilitate the trading of token shares via DeFi protocols would create two separate regulatory regimes for trading the same security,” she said. “This outcome would be the opposite of the ‘technically neutral’ approach taken by the Exchange Act.”

Citadel’s letter, which was filed in response to the Securities and Exchange Commission seeking comments on how to approach token stock regulation, sparked significant backlash from the cryptocurrency community and organizations advocating for blockchain innovation.

Cryptocurrency Users, Blockchain Association Attacks

“Who would have thought that Citadel would be against innovation that removes predatory, rent-seeking intermediaries from the financial system?” asked attorney and Blockchain Association board member Jake Chervinsky on Thursday.

“Oh, right, literally everyone in the cryptocurrency space,” he added.

“It stands to reason that the king of shady TradFi market makers doesn’t like open source and peer-to-peer technology that could lower the barrier to creating liquidity,” added Hayden Adams, founder of Uniswap.

“Regulating software developers as if they were financial intermediaries would undermine U.S. competitiveness, push innovation abroad, and do nothing to strengthen investor protections,” said Summer Mersinger, CEO of cryptocurrency advocacy group the Blockchain Association.

“We urge the SEC to reject this broad and unwieldy approach, and instead focus regulatory attention on the actual intermediaries who stand between users and their assets,” she added.

Related to: Tokenized money market funds rose to $9 billion; The Bank for International Settlements warns of new risks

Citadel wrote to the SEC’s cryptocurrency task force in July to say that tokenized securities “should achieve success by offering real innovation and efficiency to market participants, not through self-serving regulatory arbitrage.”

SIFMA also urges not to rule out DeFi

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 protections as TradFi investors.