HPC and Phantom push the CFTC to clearly distinguish between developers and financial companies in o

HPC and Phantom urge the CFTC to clearly distinguish between developers and financial companies in on-chain rules

Draw a clear legal line between code and commerce

The Hyperliquid Policy Center (HPC) and Phantom, a leading self-managed wallet provider, jointly submitted a letter to the U.S. Commodity Futures Trading Commission (CFTC) arguing that upcoming on-chain regulatory rules must clearly distinguish between infrastructure developers and financial service providers. The two agencies believe that confusing the two may curb innovation in blockchain technology without improving the level of consumer protection.

Drawing the legal line between code and business

In the letter, HPC and Phantom emphasized that U.S. financial regulation has long recognized the fundamental difference between building infrastructure and operating financial services. They point to Internet service providers-although they provide critical infrastructure for online banking and transactions, they are not regulated as financial companies. They argue that software engineers developing decentralized agreements should not bear the same compliance responsibilities as entities that process customer funds or operate trading platforms.

The letter was submitted as the CFTC was seeking public comment on its proposed regulatory framework for digital asset derivatives and on-chain markets. The committee has expressed its intention to apply existing financial regulations to blockchain-based systems, but critics warn that if the rules are not properly formulated, they could affect non-financial participants.

Why is this difference important

The core argument between HPC and Phantom is based on a simple analogy: the software engineers who build the matchmaking engine are not involved in the day-to-day operations of futures exchanges; similarly, developers who write smart contract code for decentralized exchanges should not be automatically classified as financial intermediaries. The two agencies urged the CFTC to target regulation on financial companies that operate services on top of blockchain infrastructure, rather than on developers who create the underlying technology.

This difference has a significant impact on the entire crypto ecosystem. If the CFTC adopts a broad definition of \"financial participant,\" many open source developers and protocol teams could face registration, reporting and compliance requirements originally designed for brokers and clearing houses.

Regulatory clarity is a catalyst for innovation

HPC and Phantom emphasized that a re-examination of the regulatory framework is crucial to promoting innovation in the U.S. digital asset market. They point out that clear and predictable rules would protect consumers without unduly burdening technology creators, which would encourage responsible development and investment. The letter also warned that vague regulations could encourage blockchain development activities to flow overseas, where the legal definition of developers is clearer.

The CFTC has not publicly responded to the letter, but the opinion adds new content to the growing body of industry feedback as the agency continues to refine its digital asset supervision strategy.

Conclusion

The joint letter between HPC and Phantom is a precise effort to shape U.S. regulatory policy at a critical moment. As the CFTC considers how to apply decades-old financial rules to modern blockchain systems, the answer to the question of \"who is a financial participant\" will determine the scope of compliance responsibilities. The outcome of this discussion will have profound implications for developers, protocol teams and the future of decentralized finance in the United States.

FAQs

Q1: Why did HPC and Phantom write to the CFTC?
They urged the CFTC to clearly distinguish between blockchain infrastructure developers and financial service providers in its on-chain regulation proposal, arguing that the existing framework risks over-regulating technology creators.

Q2: What are the key analogies used in the letter?
The two institutions compare blockchain developers to Internet service providers or software engineers building matchmaking engines-they provide critical infrastructure but are not directly involved in financial operations and therefore should not be regulated as financial companies.

Q3: What might happen if the CFTC did not make this distinction?
Broad definitions could force open source developers and protocol teams to comply with financial registration and reporting requirements, thereby discouraging innovation and promoting the transfer of blockchain development activities outside the United States.