Hyperliquid Policy Center and Phantom Pressure: CFTC promotes modernization of on-chain software rul

New impetus for U.S. regulators to adapt to on-chain realities

Efforts to push U.S. regulators to update their rules to adapt to on-chain realities have just gained new impetus. The Hyperliquid Policy Center and Phantom jointly submitted a letter of opinion to the U.S. Commodity Futures Trading Commission requesting the agency to modernize its regulatory framework so that the release of on-chain protocol software does not itself trigger registration requirements.

This document comes at a delicate moment for decentralized exchange infrastructure. Hyperliquid has grown into a leading derivatives trading platform based entirely on a self-managed model, while Phantom\'s unmanaged wallets cover millions of users on Solana, Ethereum and Bitcoin. Together, the two represent a growing group of agreements that believe the CFTC\'s existing rules are for custodian intermediaries-i.e., centralized order books, brokers and clearing houses-rather than code for direct user interaction. The push echoes a broader legislative battle, with traditional financial forces trying to block a landmark cryptocurrency bill just days before the Senate vote.

Core Appeal: Software release should not be regarded as registration-requiring behavior

The opinion letter put forward three specific requirements. First, it is clear that only publishing on-chain protocol software does not require registration with the CFTC. Second, establish clear paths for regulated exchanges and clearing houses to adopt on-chain infrastructure without violating existing rules. Third, formally incorporate Phantom Technologies \'no-action letter into the rules. This no-action letter for 2024 indicates that certain self-hosted wallet activities do not face enforcement, but using it as agency guidance creates uncertainty for developers. [TAG

The legal argument is straightforward. According to the current interpretation, developers may be considered traditional market operators simply because they deploy smart contracts that users can control. The HPC and Phantom joint opinion argued that the self-managed and transparent nature of on-chain markets made this analogy inappropriate. Transactions are settled on-chain, assets remain in the user\'s wallet, and the software itself does not hold customer funds. They believe that these structural differences require different regulatory postures.

Why the CFTC framework seems outdated

The CFTC\'s rulebook was mainly designed in an era when centralized exchanges and derivative clearing organizations acted as trusted intermediaries, holding client margins and controlling the execution of transactions. On-chain protocols break this pattern by removing intermediaries. However, the agency has not formally clarified whether writing and publishing code itself is a regulated activity. This ambiguity inhibits development and forces projects to weigh legal risk against innovation.

This is not just a philosophical debate. This uncertainty has had a real impact on the U.S. market. Chain derivatives platforms often choose to restrict access from U.S. IP addresses rather than risk responding to regulatory battles. This causes liquidity and users to flow overseas, which is exactly what the CFTC wants to avoid. As other jurisdictions such as the European Union advance MiCA-style frameworks to provide clearer guardrails, U.S. regulators are under increasing pressure to provide similar clarity. Recently, tokenized real-world assets have exceeded US$20 billion on the chain, further highlighting the need to develop rules that adapt to automated smart contract-driven settlements.

What it means for exchanges and on-chain markets

If the CFTC moves to formalize the terms of the requested clarifications, it may open up a clearer path for centralized exchanges such as CME or Coinbase Derivatives to integrate on-chain components without triggering comprehensive registration requirements for these software layers. The opinion letter clearly calls for the establishment of a framework that allows regulated entities to use distributed ledger technology for clearing and settlement. This would mark a major shift from the current stance, as any current move up the chain often triggers regulatory caution.

At the same time, incorporating Phantom\'s no-action letter into formal rules will provide a legal comfort basis for unmanaged wallet providers and protocol developers. This could speed product launches and reduce reliance on case-by-case exemptions, which always keep all parties full of speculation. For developers, the line between releasing code and operating markets will no longer be so blurred.

Still, the request does not address all pain points. When software is modified by a third party or used to facilitate illegal activities, the question of how responsibility belongs remains. Neither the opinion letter nor the CFTC\'s existing precedents provide clear answers, and this gap is one of the reasons why the debate is likely to extend beyond this comment period. Underlying agreement activity shows why this issue is now critical: Developer engagement on the top chain remains strong, reflecting the growth rate of infrastructure on the chain that regulators can no longer ignore.

The way forward

This opinion letter comes as the CFTC is showing openness to updating its policy. The agency has previously taken enforcement actions against decentralized platforms, but those actions often involve allegations of unregistered derivatives trading rather than just issuing code. The HPC and Phantom submissions attempt to draw a clear line between software release and market operations-a distinction that, if accepted, would reshape enforcement priorities.

What happens next depends on how the CFTC weighs that opinion and whether it proceeds to propose rulemaking or issues further guidance. Congressional action could also push the issue forward, although the legislative path remains complex, as the ongoing battle over the cryptocurrency market structure bill shows. Currently, the industry\'s efforts are simply to get the agency to make it clear in a lasting form that writing code is not a crime.