Hyperliquid Blockings: When AML Screening Turns into Absurdity and Reaches Bybit
The situation surrounding the Hyperliquid derivatives platform is reaching a boiling point. Instead of targeted compliance with British sanctions, the platform has chosen a "scorched earth" strategy: wallets that have had only indirect or even multi-step interaction with the HTX exchange are being blocked. Now, users of Bybit, the world's second-largest cryptocurrency exchange, could also be at risk.
What is the essence of the conflict?
The trigger was the UK sanctions of May 26, 2026, against Huobi Global S.A., a company associated with HTX. Authorities suspect the exchange of aiding Russia in circumventing restrictions, specifically in transferring over $1.5 billion through the so-called A7 network. Under British rules, the restrictions apply to local virtual asset service providers (VASPs).
The problem is that Hyperliquid is a Singaporean, not a British, company. Nevertheless, it began blocking any wallets that had any contact with addresses that interacted with HTX after May 26, regardless of the number of intermediate transfers. In effect, the platform went beyond the law, blocking users for any connection to one of the ten largest centralized exchanges without providing an appeals mechanism.
There is a known case where investor Duldul Capital was blocked simply for lending funds to a friend whose wallet turned out to be linked to HTX. Analyst as required cited this example as an illustration of overreach.
Why is this compared to absurdity?
Hyperliquid's logic is taken to an extreme: if millions of wallets are supposedly "insignificant," then it should also block everyone who deposited or withdrew funds via Bybit after June 17. Recall that Singapore's regulator MAS added Bybit Fintech Limited to its investor alert list. Thus, by the same logic, any contact with Bybit could now become grounds for a block on Hyperliquid.
It is important to dispel a common misconception: Hyperliquid's hands are not tied by analytics firms like Chainalysis or TRM Labs. As it turns out, these companies only provide factual labels ("wallet interacted with HTX") but do not dictate which specific addresses to block. The decision remains with the platform itself.
Notably, other platforms have found a more balanced approach. Marketplace OpenSea unblocked wallets within hours of an appeal, while exchanges Lighter and Extended did not block the same addresses at all. This proves that a transparent appeals process does not create legal risks but rather demonstrates the platform's maturity.
Prominent on-chain researcher ZachXBT noted that the sanctions against HTX have effectively devalued risk assessment on the blockchain: compliance systems now flag many ordinary wallets that have only once interacted with the exchange as "high-risk."
My Analysis
Such a strict interpretation contradicts Hyperliquid's very idea of finance, which should empower people, not deprive them of access without the right to defense. If the platform continues in the same vein, it risks not only losing community trust but also facing a massive outflow of liquidity. In the world of DeFi, where competition is fierce, the reputation of a "digital executioner" is not the best strategy for long-term growth.