Phantom & Hyperliquid Urge CFTC to Update Crypto Rules

Phantom and Hyperliquid are calling on the Commodity Futures Trading Commission (CFTC) to overhaul aging financial regulations to better reflect the realities of onchain derivatives and decentralized technology.

Two major players in the digital asset space, Phantom and Hyperliquid, have officially petitioned US regulators to modernize the rules governing onchain derivatives (financial contracts that derive value from an underlying asset, managed on a blockchain). This move comes as the CFTC (the federal agency overseeing US derivatives markets) considers how to integrate decentralized finance into existing legal frameworks. For American investors, this could determine whether advanced trading tools remain accessible through US-based platforms.

The Push for Regulatory Clarity in DeFi

The core of the argument is that current regulations were designed for centralized intermediaries like traditional banks and brokerage firms. These rules require entities to hold customer funds and verify identities in ways that decentralized protocols simply cannot accommodate. Phantom, a popular non-custodial wallet (a digital tool where users hold their own private keys), argues that wallet providers do not function like traditional brokers.

Hyperliquid, a decentralized exchange (a platform that allows for peer-to-peer trading without a middleman), emphasizes that the software itself handles the transactions. They argue that by applying old-world rules to new-world code, the US risks pushing innovation overseas. By modernizing these standards, the CFTC could potentially allow for a safer, regulated environment for DeFi (decentralized finance) to thrive within the United States.

"The digital asset ecosystem requires a regulatory framework that recognizes the fundamental difference between software developers and financial intermediaries."

Protecting the Non-Custodial Model

A major concern for the industry is the classification of self-custody tools. Currently, some interpretations of the law could label wallet developers as Introducing Brokers or Futures Commission Merchants. This would require these developers to register with the government, maintain massive capital reserves, and implement invasive surveillance on their users.

Phantom and Hyperliquid suggest that the CFTC should focus on the following pillars:

• Exempting software developers from intermediary registration requirements.
• Recognizing that automated smart contracts (self-executing code) are not the same as human-led trading desks.
• Providing a pathway for compliant onchain trading that doesn't require users to give up control of their private keys.
• Updating disclosure requirements to be more relevant to blockchain data.

How Modern Rules Benefit the Market

Streamlining these rules would likely increase liquidity and reduce risk for the average user. According to data tracked by CoinGecko, the volume of decentralized derivatives is growing rapidly, yet many US traders find themselves blocked from these markets due to legal uncertainty. Clearer rules would allow US developers to build these tools openly without the threat of sudden enforcement actions.

The companies are not asking for a total lack of oversight. Instead, they are advocating for functional regulation. This means the law should look at what an entity actually does rather than just the technology it uses. If a protocol is truly decentralized, it should not be treated the same as a massive centralized exchange like the New York Stock Exchange.

The Path Forward for US Derivatives

The process for rule-making in Washington D.C. is often slow, but the pressure is mounting. The CFTC has recently been more active in engaging with the crypto community than other regulators. This petition serves as a formal roadmap for how the agency can pivot toward a pro-innovation stance that still protects the integrity of the US financial system.

1. Public Comment: The CFTC may open these suggestions for public feedback.
2. Policy Review: Internal teams will assess how many of these changes can be made without new acts of Congress.
3. Drafting: New guidelines could be issued later this year or in 2025.

What This Means for USA Investors

For US-based crypto participants, this regulatory battle is highly significant. Currently, many advanced trading features are only available to residents who use offshore platforms, which creates IRS tax reporting headaches and increases the risk of fraud. If the CFTC adopts a more modern approach, we could see major US exchanges like Coinbase or Kraken expanding their onchain derivative offerings.

Furthermore, clarity on the status of wallets like Phantom ensures that self-custody remains a protected right in the US. From a USD price perspective, a clear regulatory win often leads to increased institutional confidence, which can drive capital into the ecosystem. Investors should watch for SEC (Securities and Exchange Commission) reactions, as they often contest the CFTC for jurisdiction over the same crypto assets.

Key Takeaways

• Urge regulators to exempt non-custodial wallet providers from rules meant for traditional banks.
• Advocate for a distinction between software developers and financial intermediaries.
• Propose a modern framework for decentralized derivatives trading in the United States.
• Seek to protect innovation within the American blockchain ecosystem from outdated laws.