The Hyperliquid Policy Center (HPC) and Phantom, a provider of non-custodial wallets, have made a significant request to the Commodity Futures Trading Commission (CFTC). They are urging the regulatory body to exempt decentralized finance (DeFi) from traditional financial regulations, which they argue do not apply to onchain operations.

This joint comment was submitted just ahead of the CFTC’s comment deadline of July 9. HPC and Phantom contend that onchain software and self-custodial wallets should be viewed as tools, not as intermediaries bound by the existing rules designed for conventional financial institutions.

Importance of this Appeal

Why does this matter? The implications of these recommendations could reshape the DeFi landscape, enabling innovation while ensuring compliance is not stifled. With the right regulatory framework, the CFTC can foster the growth of onchain markets, retain talented developers in the U.S., and provide users with greater control over their assets.

  • Submission made before the CFTC’s July 9 deadline.
  • Request includes three key items: clarification on registration, modernization of derivatives rules, and formalized no-action relief.
  • Advocating for a shift in perspective on non-custodial wallets' role.

HPC and Phantom detailed their requests as a response to a CFTC request for information (RFI) issued on June 18. They argue that simply publishing onchain protocol software should not necessitate registration as an exchange or clearinghouse. Moreover, registered entities should be allowed to operate regulated functions on onchain platforms without losing their compliance responsibilities.

Rethinking User Custody

The focus here is on the nature of non-custodial wallets. Since these wallets don't hold customer funds or perform trades, HPC and Phantom assert they shouldn't be subjected to the same intermediary obligations as other financial institutions. They believe creating regulations tailored to onchain markets can keep U.S. developers engaged, as opposed to relocating abroad, while also enhancing the speed and safety of transactions in transparent DeFi markets.

Current circumstances appear favorable, as the CFTC is under the leadership of Chairman Michael Selig, who is advocating for clearer regulations in the crypto space. This friendly environment enhances the chances of the proposals being taken seriously.

What Lies Ahead?

The CFTC is now tasked with reviewing the industry’s feedback before deciding whether to introduce new guidance or embark on rulemaking. The outcome of this decision could have a substantial impact on the future of onchain activities in the United States.

Disclaimer: This material is for informational purposes only and does not constitute financial advice.