Hyperliquid and Phantom urge the CFTC: Do not stifle DeFi with 20th-century regulations
Leading players in the crypto industry—Hyperliquid Policy Center (HPC) and the developer of the non-custodial wallet Phantom—have submitted a joint letter to the U.S. Commodity Futures Trading Commission (CFTC). Their key message: regulating decentralized finance (DeFi) according to the templates of traditional markets is a dead end.
Both organizations submitted their comments in response to a CFTC request from June 18. The regulator asked market participants to identify which specific rules are hindering fintech development. And the response from HPC and Phantom was extremely specific.
At the core of their argument lies a fundamental distinction: developing software for on-chain protocols is not market management. Consequently, automatically equating DeFi protocol developers with exchanges or clearing houses is a grave mistake.
Three Pillars of a New Regulatory Philosophy
HPC and Phantom put forward three specific proposals, which, in my view, are the minimally necessary foundation for DeFi to survive in the U.S.
First: Achieve official recognition that publishing code for on-chain protocols does not impose automatic registration obligations as an exchange. This removes a colossal legal risk for developers.
Second: Allow already registered exchanges and clearing houses to perform their regulated functions within on-chain systems. This would enable adapting existing U.S. rules for derivatives trading without losing control over compliance with standards.
Third: Codify at the level of official regulation the exemption granted to Phantom in March, so that other non-custodial wallet providers also receive clear legal guarantees.
Non-Custodial Wallets: A Tool, Not an Intermediary
The key thesis of HPC and Phantom is that non-custodial wallets do not hold client funds or execute transactions on their behalf. Therefore, applying requirements designed for financial intermediaries to them is legally and technologically incorrect.
The organizations emphasize: transparent rules for on-chain markets will not only retain developers in the U.S. but also create more efficient infrastructure. The transparency of DeFi markets allows for faster settlement processing and reduces counterparty risks, benefiting all participants.
This initiative comes amid a shift in course by the CFTC itself. Chairman Michael Selig, who took office in December, has consistently advocated for more transparent regulation of the crypto industry and has already approved the launch of perpetual futures within the U.S.
"This is our response, and the decision on this matter lies entirely within the commission's competence," HPC and Phantom stated in their letter.
The CFTC now must analyze all submitted positions and decide whether to issue specific clarifications or launch a full-fledged rulemaking process. This decision will directly determine how much on-chain activity remains within U.S. jurisdiction.
Cryptalist Analysis: This is not just lobbying—it is an attempt to save the American crypto industry from its own regulator. If the CFTC does not heed the arguments of Hyperliquid and Phantom, we will witness a mass exodus of DeFi developers to more friendly jurisdictions. Time for a balanced decision is limited, and the stakes are extremely high.