The Hyperliquid Policy Center and Phantom’s Appeal
The Hyperliquid Policy Center (HPC) and Phantom have recently appealed to the U.S. Commodity Futures Trading Commission (CFTC) to reform its regulatory framework concerning onchain trading. They assert that current rules designed for traditional financial markets do not adequately accommodate decentralized financial systems. Their joint response, submitted on Thursday, comes in reaction to a recent Request for Information (RFI) from the CFTC alongside the Securities and Exchange Commission (SEC), which seeks public insight on regulatory barriers hindering financial innovation and the integration of new technologies into CFTC-regulated entities.
Concerns Over Current Regulatory Models
In their letter, HPC and Phantom emphasized that the established regulatory model presumes centralized control over customer assets—where brokers, exchanges, and clearinghouses typically manage funds during trading. However, in the realm of onchain markets, users maintain direct control over their assets, thus differing significantly from conventional market dynamics.
The organizations advocate that developers of onchain trading applications should not be compelled to register as exchanges or clearing agents merely based on the decentralized nature of their infrastructure. Furthermore, they contend that non-custodial wallet services like Phantom should not be categorized as introducing brokers, as they operate distinct from traditional financial intermediaries.
Recommendations for Regulatory Reform
Their recommendations include permitting companies already registered with the CFTC to utilize blockchain technology for transactions and settlements without facing onerous regulatory hurdles. This plea is timely, given the ongoing assessment by U.S. authorities on how decentralized finance interacts with existing derivatives regulations.
Ongoing Legal Challenges and Industry Reactions
CFTC Chair Michael Selig has previously suggested that this joint inquiry might clarify longstanding ambiguities in the Dodd-Frank Act regarding emerging financial instruments. At the same time, SEC Chairman Paul Atkins has urged the establishment of clearer definitions for innovative financial products. This call for regulatory modernization is especially relevant as the CFTC is embroiled in litigation with CME Group concerning the latter’s challenge to the approval process for regulated crypto perpetual futures.
CME’s lawsuit, filed in June, asserts that the approval of perpetual futures on platforms including Kalshi constitutes a deviation from how swaps are legally defined under Dodd-Frank, thereby circumventing necessary statutory processes. The case has gained notoriety, especially after Kalshi diversified its offerings beyond Bitcoin and Coinbase achieved a regulatory path to launch certain crypto perpetual futures through infrastructure tied to Deribit.
In opposition to CME’s legal move, HPC founder Jake Chervinsky has criticized the lawsuit as misguided, labeling it an attempt to deter emerging competition within the crypto sector. Remarkably, almost immediately after CME lodged its complaint, the CFTC and SEC initiated public commentary on whether the definitions concerning swaps merit re-evaluation in light of progressively evolving financial products like crypto perpetual contracts.
