Market maker Citadel Securities has suggested that the U.S. Securities and Exchange Commission (SEC) tighten regulations on decentralized finance (DeFi) regarding tokenized stocks, sparking a strong backlash from crypto users.

Citadel Securities stated in a letter to the SEC on Tuesday that DeFi developers, smart contract coders, and self-custody wallet providers should not be granted "broad exemptions" when offering tokenized U.S. stock trading.

It argued that decentralized finance trading platforms are likely to fall under the definitions of "exchanges" or "broker-dealers," and if they offer tokenized stocks, they should be subject to securities law regulation.

"Granting broad exemptions for trading tokenized shares through DeFi protocols would create two separate regulatory frameworks for trading the same security," it stated. "This outcome is completely contrary to the 'technology-neutral' approach taken by the Securities Exchange Act."

Citadel's letter is a response to the SEC's request for feedback on how to regulate tokenized stocks, which has triggered a strong backlash from the crypto community and organizations advocating for innovation in the blockchain space.

"Who would have thought Citadel would oppose innovation that removes predatory, rent-seeking intermediaries from the financial system?" asked lawyer and Blockchain Association board member Jake Chervinsky on Thursday.

"Oh right, everyone in crypto thinks that," he added.

Uniswap founder Hayden Adams remarked, "The king of market makers in traditional finance doesn't like open-source, peer-to-peer technology that lowers the barriers to liquidity creation, which is understandable."

Blockchain Association CEO Summer Mersinger stated, "Regulating software developers like financial intermediaries will weaken U.S. competitiveness, push innovation overseas, and do nothing to enhance investor protection."

"We urge the SEC to reject this overly broad and unworkable approach and to focus regulation on the true intermediaries standing between users and their assets," she added.

In July, Citadel wrote to the SEC's crypto task force, stating that tokenized securities "must succeed by providing genuine innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage."

The industry association Securities Industry and Financial Markets Association (SIFMA) issued a similar statement on Wednesday, supporting innovation but insisting that tokenized securities must be subject to the same fundamental investor protections as traditional finance.

The association noted that the recent turmoil in the crypto market, including the October flash crash, serves as a timely reminder of "why a long-term regulatory framework for securities designed to maintain market quality and protect investors was initially established."

The statement echoed the industry group's stance taken in July, which rejected the SEC's proposal to grant any exemptions to blockchain and DeFi platforms issuing tokenized assets.

In November, the World Federation of Exchanges, representing major stock exchanges, urged the SEC to abandon plans to grant "innovation exemptions" to crypto companies seeking to offer tokenized stocks.

Related: Further, 3iQ launches $100 million fund for compounded returns in Bitcoin (BTC)

Original article: “Citadel Calls for SEC Regulation of DeFi Tokenized Stocks Sparks Outrage”

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