Hyperliquid Policy Center, Phantom urge CFTC to update rules for onchain markets

• HPC and Phantom, in a joint letter, say current CFTC rules were designed for custodial-based traditional financial markets.
• Both organizations suggest that the Commission should exempt developers of onchain software from the registration requirements imposed on traditional exchanges and other intermediaries.
• The letter comes in response to the CFTC's Request for Information last month.

In a joint comment letter on Thursday, Hyperliquid Policy Center (HPC) and Phantom urged the Commodity Futures Trading Commission (CFTC) to update its rules to align with self-custodial and onchain trading markets.

The organizations stated that current CFTC rules were designed for traditional financial markets, where intermediaries take on custodial roles.

"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," the letter states. "At every step, someone other than the customer controls the funds."

HPC and Phantom argued that onchain markets function differently, as rules written in code facilitate self-custody and decentralized peer-to-peer markets without the need for intermediaries. It also allows regulated entities to boost settlement time and transparency.

"These markets have moved past the rules written for custodial intermediaries running on their own private systems, and the rules should move with them," both organizations wrote.

The letter comes in response to the CFTC and the Securities and Exchange Commission (SEC)'s Request for Information (RFI) last month, seeking public input on regulations that hamper partnerships between fintech providers and CFTC-regulated firms.

HPC and Phantom ask CFTC to take major steps

HPC and Phantom suggested that the Commission should confirm that developers who build onchain protocols without retaining control over their use do not require registration as traditional exchanges, clearinghouses, or introducing brokers.

They also urged the Commission to issue guidance on how CFTC-regulated entities can leverage onchain infrastructure.

Additionally, they emphasized that the CFTC should turn its no-action letter granted to Phantom into a rule, enabling front-end and wallet providers to facilitate access to regulated, onchain markets without "having to ask, one at a time, for relief the Commission has already granted."

The CFTC, under the leadership of Chairman Michael Selig, has shifted towards a more welcoming approach to onchain financial products in accordance with the Trump administration's objectives. Its recent efforts include launching tokenized pilot programs and approving the first regulated Bitcoin perpetual futures contract.

However, those actions have ruffled a few feathers in the industry. The CME Group filed a lawsuit against the CFTC last month, contesting the agency’s greenlighting of perps in the US and asserting that these products should be legally categorized as swaps instead of perpetual futures.

Meanwhile, the SEC outlined plans on Tuesday to formalize oversight of digital assets as the wait for lawmakers to decide on the Clarity Act continues.