The Hyperliquid Policy Center (HPC) and self-custodial wallet provider Phantom jointly submitted a comment letter to the U.S. Commodity Futures Trading Commission (CFTC) on Thursday, arguing that current regulations for onchain trading infrastructure are outdated and poorly suited for decentralized finance. The letter responds to a joint Request for Information (RFI) issued by the CFTC and the Securities and Exchange Commission (SEC) in mid-June, which seeks public input on rules that may hinder financial innovation and partnerships with CFTC-regulated firms.
Key Arguments
HPC and Phantom contend that the CFTC’s existing rules, designed for legacy markets reliant on centralized intermediaries, should not automatically apply to decentralized protocols. “The Commission's preexisting rules were built for legacy markets,” the letter states. “There, customers hand their orders and money to a chain of intermediaries: a broker takes the order, an exchange matches it, and a clearinghouse guarantees and settles it, collecting margin and standing behind the trade. At every step, someone other than the customer controls the funds.” The signatories stress that onchain markets operate differently and require distinct regulatory treatment.
The core proposal is that merely developing onchain trading software—such as the Hyperliquid platform—should not trigger registration requirements as an exchange or clearinghouse. Similarly, non-custodial front-end providers like Phantom should not be forced to register as introducing brokers, because code itself “has no legal personality, no capacity to enter into contracts, and no ability to respond to regulatory inquiries.” The groups draw a parallel to internet service providers, which are not regulated as financial firms despite enabling online banking.
Broader Context
The letter arrives amid heightened regulatory tension. In May, the CFTC under Chair Michael Selig approved the first U.S.-regulated bitcoin perpetual futures contract, opening the door to more onshore perpetuals. CME Group, the world’s largest commodities exchange, later sued the CFTC, challenging those approvals and arguing perpetual futures should be classified as “swaps.” CME had also lobbied for greater scrutiny of Hyperliquid, which saw increased activity in perpetual oil contracts during the Iran-U.S. war. Hyperliquid Policy Center founder Jake Chervinsky criticized CME’s lawsuit as a “shocking misjudgment” and an attempt to block competition. The joint RFI from the CFTC and SEC, published a day after CME’s suit, directly asks whether the definition of “swaps” needs updating.
HPC and Phantom also urge that firms already registered with the CFTC should be allowed to implement blockchain technology for trading and clearing, arguing that clear regulatory distinctions will foster innovation without compromising consumer protection.
