In their joint letter to the US Commodity Futures Trading Commission, Hyperliquid Policy Center and Phantom asked for it to be clearly stated that publishing on-chain protocol software does not in itself create registration obligations. The two organizations argued that the current rules were prepared largely based on intermediaries providing custody services, and therefore did not fully meet the on-chain market infrastructure.
Demand for a more open framework for on-chain infrastructure
The application also requested the creation of a clear regulatory pathway for registered exchanges to use on-chain systems. The parties also requested that the previously issued no action letter for Phantom be turned into a permanent and official rule. The no action letter refers to the administrative approach in which the regulatory authority states that it will not take enforcement action under certain conditions.
Mini dictionary: A no action letter is a written statement from a regulatory body that it does not intend to impose sanctions under the current circumstances for a particular activity. Such letters are not exactly binding rules; therefore companies often request a more permanent arrangement.
Hyperliquid Policy Center and Phantom emphasized that protocol developers and intermediary institutions should not be put in the same category, and that this distinction must be clearly included in the rules.
The two organizations likened software developers to internet service providers. According to this approach, the role of the intermediaries who set up the infrastructure and those who receive customer orders is different, and this difference must be taken into account in the regulations. The letter stated that digital asset developers did not encounter a consistent approach in the past and that some companies could not predict whether they would be considered to be operating unregistered exchanges.
Developers and intermediaries were asked to separate
In the application, it was pointed out that on-chain markets are structurally different from traditional custody transaction systems. While in traditional markets customer assets generally move sequentially between brokerage firms, exchanges and clearing houses, in on-chain systems users can hold their assets directly and trade with each other.
On-chain systems allow users to hold their own assets and transact directly; Therefore, the regulatory framework also needs to reflect this fundamental difference.
The joint text contained three main recommendations. First, we were asked to confirm that simply publishing protocol software does not require registration. Secondly, it was requested to open a path that would allow registered exchanges to directly adopt on-chain infrastructure. Thirdly, turning the Phantom no action letter into an official rule was brought to the agenda.
The request was filed on the grounds of growth and regulatory clarity within the US
Hyperliquid Policy Center is known as a structure that carries out policy studies around the Hyperliquid ecosystem. Phantom, on the other hand, operates as a crypto platform that offers a non-custodial wallet service. The two organizations framed their proposal as a step to support keeping innovation within the United States.
The letter noted that obligations that the code cannot solve alone can continue to be fulfilled by regulated intermediaries. Thus, it was argued that investor protections would be preserved, while the infrastructure for on-chain derivative markets could be updated. The parties stated that the requested changes were within the Commission’s current jurisdiction and could be implemented without the need for a new law.
It was stated that turning the approach given for Phantom into a rule is especially important for smaller non-custodial wallet providers. It was noted that such a step would help companies achieve more permanent legal clarity rather than seeking exemptions one by one. It was emphasized that the proposed framework could also offer registered exchanges and clearing institutions the opportunity to transition from legacy systems to more transparent on-chain alternatives.
