Hyperliquid Policy Center, Phantom urge CFTC to stop treating onchain protocols like traditional brokers and exchanges

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, which is reliant on centralized intermediaries, and not for decentralized finance.

"The Commission's preexisting rules were built for legacy markets," HPC and Phantom wrote. "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.

The CFTC and the Securities and Exchange Commission issued a Request for Information (RFI) in mid-June, asking for input on regulations that are impacting financial innovation and making it harder for novel tech providers to partner with CFTC-regulated firms.

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.

Notably, HPC and Phantom also argue that firms already registered with the CFTC should be able to implement blockchain technology for trading and clearing.

Under the Trump administration, the CFTC led by Michael Selig has taken a more accommodating approach to regulating the crypto industry. Most notably, 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, 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.