Phantom, Hyperliquid ask CFTC to modernize rules for onchain derivatives

Crypto wallet provider Phantom and the Hyperliquid Policy Center have urged the US Commodity Futures Trading Commission (CFTC) to exempt blockchain protocol developers and non-custodial wallet providers from regulations designed for traditional financial intermediaries.

In response to a CFTC request for information on regulations affecting fintech firms, the companies asked the agency to confirm that blockchain protocol developers do not have to register solely for creating onchain software, issue guidance allowing regulated derivatives firms to use blockchain infrastructure, and codify exemptions preventing non-custodial wallet providers from being treated as introducing brokers.

The companies argued that existing CFTC regulations were designed for custodial financial intermediaries that hold customer assets and process trades, while onchain protocols allow users to transact directly without intermediaries controlling funds or executing orders.

Letter to the CFTC. Source: Hyperliquidpolicy.org

They said registration requirements should apply to entities that handle customer funds or execute trades, rather than to developers who create blockchain software or contribute to open-source protocols without controlling how the software is used.

The groups also asked the CFTC to clarify that registered derivatives exchanges, clearinghouses and intermediaries can use onchain infrastructure for functions including trade execution, clearing, settlement, margining and recordkeeping, provided they continue to comply with existing regulations.

The groups said the alternative to adopting the recommendations is the status quo, in which "American users continue to be walled off from onchain derivatives markets," while innovation continues to take place offshore.

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Regulatory debate over onchain derivatives intensifies

The letter comes as crypto companies and traditional exchanges press US regulators over how blockchain-based derivatives should be regulated, with both sides seeking greater clarity on the agency's approach.

In May, Intercontinental Exchange and CME Group reportedly urged regulators to scrutinize Hyperliquid's expansion into commodity-linked perpetual futures, arguing that the decentralized platform's energy derivatives posed market integrity and manipulation risks.

Two weeks later, ICE CEO Jeffrey Sprecher called for a "level playing field" that would allow regulated exchanges to offer 24/7 onchain perpetual futures, saying existing regulations were preventing traditional exchanges from competing with platforms such as Hyperliquid. Sprecher also said ICE had held exploratory discussions with Hyperliquid to better understand onchain derivatives markets.

CME, meanwhile, has continued expanding its own regulated crypto derivatives business. This year, the exchange announced futures tied to Avalanche and Sui, launched CFTC-regulated Bitcoin volatility futures and introduced the Nasdaq CME Crypto Index futures, a market-cap weighted contract tracking seven digital assets.

Despite that expansion, CME sued the CFTC in June over the agency's approval of crypto perpetual futures, arguing the regulator exceeded its authority under the Commodity Exchange Act.

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