HPC, Phantom Urge CFTC Not to Treat Onchain Protocols as Brokers

On Thursday Hyperliquid Policy Center and Phantom asked the Commodity Futures Trading Commission to avoid treating onchain trading protocols as brokers, exchanges or clearinghouses. The request was submitted in a co-authored comment letter that urged the agency to adopt rules suited to code-based, non-custodial trading infrastructure.

The letter responded to a joint CFTC and SEC Request for Information published in mid-June that sought input on rules affecting financial innovation and the ability of technology providers to work with regulated firms. The groups argued the CFTC’s existing regime assumes a chain of intermediaries: brokers that take orders, exchanges that match them and clearinghouses that guarantee settlement.

“The Commission's preexisting rules were built for legacy markets,” the letter wrote. It added that in traditional markets “someone other than the customer controls the funds.” The groups added, “Onchain markets work differently, and they need rules of their own.”

HPC and Phantom asked the CFTC to clarify that building or distributing onchain trading software should not automatically trigger registration as an exchange or clearinghouse. The letter also argued that non-custodial front-end providers, such as Phantom’s wallet, should not be treated as introducing brokers when they simply provide an interface that lets users interact with decentralized trading code. The groups drew a legal distinction between code and operators, noting that code “has no legal personality, no capacity to enter into contracts, and no ability to respond to regulatory inquiries.”

The letter said firms already registered with the CFTC should be allowed to use blockchain technology for trading and clearing functions without creating unexpected registration obligations. In May the CFTC approved the first U.S.-regulated bitcoin perpetual futures contract, a decision that market participants said could lead to more perpetual futures products onshore. That approval prompted a legal challenge from CME Group, which last month sued the CFTC and argued that perpetual futures should be classified as swaps rather than futures. CME has previously requested greater scrutiny of Hyperliquid after the platform’s perpetual oil contracts saw notable uptake during a period of heightened Iran-U.S. tensions.

Hyperliquid Policy Center founder Jake Chervinsky criticized CME’s lawsuit, calling it “a shocking misjudgment” and accusing the exchange operator of acting like a monopolist trying to block competition. The day after the CME filing, regulators issued the joint RFI that solicited public views on whether definitions such as “swaps” need updating.

The comment letter asked the CFTC to draw bright lines that distinguish software developers from operators that exercise control over assets, and to write rules that allow registered firms to adopt blockchain tools without triggering unintended registration requirements.