The Hyperliquid Policy Center and Phantom on Thursday asked the Commodity Futures Trading Commission to update its rules regarding onchain trading infrastructure. In a co-written comment letter, the organizations argued that current CFTC rules were written for the traditional financial system reliant on centralized intermediaries, not for decentralized finance. The request responds to a Request for Information issued by the CFTC and Securities and Exchange Commission in mid-June, which asked for input on regulations impacting financial innovation and making it harder for novel tech providers to partner with CFTC-regulated firms.
HPC and Phantom Argue Legacy Rules Do Not Fit Onchain Markets
"The Commission's preexisting rules were built for legacy markets," HPC and Phantom wrote in the comment letter. "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."
"Onchain markets work differently, and they need rules of their own," they added.
Organizations Challenge Registration Requirements for Onchain Software Providers
In the letter, HPC and Phantom argue that simply building onchain trading software, like Hyperliquid, should not trigger registration requirements as an exchange or clearinghouse. Likewise, they argue that non-custodial front-end providers like Phantom do not have to register as introducing brokers.
This is because code itself "has no legal personality, no capacity to enter into contracts, and no ability to respond to regulatory inquiries," unlike operators of traditional derivatives trading platforms.
HPC and Phantom also argue that firms already registered with the CFTC should be able to implement blockchain technology for trading and clearing.
CFTC Approved First US-Regulated Bitcoin Perpetual Futures Contract in May
Under the Trump administration, the CFTC led by Michael Selig has taken a more accommodating approach to regulating the crypto industry. In May, the agency approved the first U.S.-regulated bitcoin perpetual futures contract and opened the door to bringing more perps onshore.
CME Group Sued CFTC Last Month Over Perpetual Futures Approvals
CME Group, the largest commodities exchange in the world, has previously lobbied the CFTC and members of Congress to increase scrutiny on Hyperliquid, which saw notable uptake in its perpetual oil contracts during the breakout of the Iran-U.S. war.
Last month, CME sued the CFTC, challenging the recent perps approvals in the U.S., and arguing that perpetual futures should be classified as "swaps" rather than futures.
Hyperliquid Policy Center founder Jake Chervinsky has publicly criticized CME's lawsuit against the CFTC, calling it a "shocking misjudgment" and accusing CME of acting like a monopolist trying to block competition.
A day after CME sued, the CFTC and SEC published their joint request for public comment, which also directly asked whether the definition of "swaps" needed to be updated.
FAQ
What did Hyperliquid Policy Center and Phantom ask the CFTC to do on Thursday?
Hyperliquid Policy Center and Phantom asked the Commodity Futures Trading Commission to update its rules regarding onchain trading infrastructure. In a co-written comment letter, they argued that current CFTC rules were written for the traditional financial system reliant on centralized intermediaries, not for decentralized finance.
Why did CME Group sue the CFTC last month?
Last month, CME Group sued the CFTC, challenging the recent perpetual futures approvals in the U.S. CME argued that perpetual futures should be classified as "swaps" rather than futures. CME Group has previously lobbied the CFTC and members of Congress to increase scrutiny on Hyperliquid.
