Hyperliquid Policy Center requests developer registration exemption from CFTC

The Hyperliquid Policy Center and Phantom Technologies have jointly submitted a comment to the Commodity Futures Trading Commission (CFTC) regarding the agency's public contribution, as per RFI RIN 3038-ZA24.

7/11/20264 min read

Software is not a market participant.

The letter's core argument is based on the distinction between software and legal entity status that the current CFTC registration framework was never required to clarify for blockchain protocols because these protocols did not exist when the legal framework was drafted. The CFTC's registration categories designate contract markets, swap execution facilities, derivative clearing organizations, futures brokers, referral brokers, and swap agents, applicable to individuals or entities performing defined functions within the derivatives market. The letter argues that software running on a public blockchain falls into any of these categories: it "has no legal entity status, no ability to enter into contracts, and no ability to answer questions from regulators."

The practical consequence of this classification gap is that developers deploying smart contract protocols face genuine legal uncertainty about whether their code makes them a regulated entity—an uncertainty the letter describes as the structural driver of overseas migration. “If a developer deploys a perpetual security protocol and immediately faces the prospect of having to register as a DCM, then the logical move is to move to a more friendly jurisdiction,” the letter states, directly linking the registration ambiguity to the overseas concentration of DeFi development, which has excluded U.S. users from access to on-chain derivatives. The first request asked the CFTC to address that ambiguity by confirming that simply publishing protocol software without any action taken to process customer orders, hold customer funds, or engage in transactions with customers does not trigger any registration requirements from the agency.

The argument draws a clear line: registration requirements should apply to individuals or organizations that actually process customer orders or funds or engage in transactions with customers. Source code that facilitates such activities, but is not the entity performing them, falls outside the registration framework by its nature, not by exemption.

Blockchain Framework for the Subscription Marketplace

The second point in the letter addresses another legal conflict: entities registered with the CFTC, including designated contract markets and futures brokers, are currently unable to utilize blockchain infrastructure for regulated functions such as order matching, settlement, and margin trading without falling into a compliance gray area, where it is unclear whether blockchain-based enforcement meets the legal requirements designed for centralized proprietary systems.

The letter identifies three specific types of legacy rules in which the CFTC's legal framework assumes proprietary, custody-based system architectures in ways that hinder or complicate blockchain adoption by custody markets: system protection rules under CFTC Regulation 38.1050, which assume centralized system ownership and control; segregation requirements designed for custody models where a single firm holds client assets; and record-keeping requirements under CFTC Regulation 1.31, where traditional WORM storage standards are designed for centralized databases rather than public blockchain ledgers.

Specifically regarding record keeping, the letter cites the Chairman's Working Group's July 2025 recommendation that the CFTC allow blockchain technology to meet the obligations of Regulation 1.31, arguing that public blockchains inherently provide the immutability and verifiability that the WORM standard is designed to ensure through centralized storage. A second request suggests the CFTC provide formal guidance that registered entities can use blockchain infrastructure for regulated functions without compromising their compliance status due to the mismatch between the legacy rule language and the operational architecture of blockchain – essentially a blockchain modernization roadmap for existing registered markets, not an exception for new entrants.

Officially legitimizing Phantom's March exemption decision as a regulation.

The most specific and immediately enforceable requirement in this letter concerns the CFTC formalizing guidance it had implicitly provided through a previous waiver letter. On March 17, 2026, the CFTC issued Letter 26-09, granting Phantom an exemption from referral brokerage registration, as Phantom's wallet provides the technical means of access rather than brokerage services. This is because Phantom does not hold users' funds, does not execute trades on behalf of users, does not manage users' positions, and cannot access users' assets without the user's permission.

The exemption letter addressed the specific regulatory uncertainty surrounding Phantom but failed to provide certainty for the dozens of other non-custodial wallet providers and DeFi interfaces operating on identical or equivalent architectures. Each company in a similar position must either live with the uncertainty Phantom faced prior to March, or file an individual exemption request—a process that wastes CFTC staff time and industry legal resources on repeated decisions on questions with identical functionality. A third request proposes that the CFTC convert the "Phantom" no-action letter into a formal regulation, expanding its scope to all non-custodial wallets and DeFi interfaces that do not hold or control client funds, providing sustainable industry-wide certainty through formal guidance rather than addressing each case individually.

Our review

The practical commercial consequences of a positive CFTC response to all three requests are the potential to shift key derivatives market operations currently operating entirely outside US jurisdiction back into the country. Retail users in the US cannot legally access Hyperliquid's perpetual futures market through Phantom's wallet integration. US developers building DeFi protocols face registration uncertainty, which drives project establishment overseas. US-registered exchanges cannot modernize their payment infrastructure with blockchain technology without risking losing compliance with legacy rules designed for centralized systems.

A CFTC guidance package addressing all three requirements would simultaneously remove regulatory barriers to U.S. users accessing compliant on-chain derivatives, reduce the regulatory costs of developing domestic DeFi, and provide existing registered markets with a clear roadmap for modernizing blockchain infrastructure—a combination the letter argues serves the executive order's stated goal of keeping fintech innovation domestic rather than pushing it to more lenient international jurisdictions. The CFTC will consider industry feedback before deciding whether to issue guidance or begin developing formal rules; the response will significantly determine the extent of development of the on-chain derivatives market within U.S. jurisdictions compared to foreign markets.

Disclaimer: The information presented in this article is the author's personal opinion in the field of cryptocurrencies. This is not financial or investment advice at all. Every investment decision should be based on careful consideration of your personal portfolio and risk tolerance. The opinion in the article does not represent the official position of the platform. We recommend that readers do their own research and consult experts before making any investment decisions.

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