Phantom Technologies and the Hyperliquid Policy Center (HPC) have submitted a joint comment to the Commodity Futures Trading Commission (CFTC), formally requesting that the federal agency overhaul its existing regulatory framework to better accommodate onchain market infrastructure. The filing serves as a direct response to the CFTC’s recent Request for Information (RFI) concerning regulations that may inadvertently stifle financial technology firms from integrating with the Commission’s regulated financial intermediaries and infrastructure. The joint submission highlights a fundamental disconnect between legacy financial regulations and the operational realities of decentralized, non-custodial technologies, arguing that current rules are rooted in an era of centralized intermediation that does not reflect the capabilities of modern blockchain protocols.
The core of the argument presented by Phantom and HPC centers on the distinction between custodial and non-custodial market structures. Historically, the CFTC’s regulatory architecture has been built upon the assumption that intermediaries—such as brokers and clearinghouses—must maintain physical or digital custody of customer funds and exercise control over order execution. However, onchain markets facilitate a paradigm shift where users retain exclusive control over their assets via private keys, interacting directly with smart contracts rather than through a centralized middleman. By failing to account for this distinction, the groups argue, the CFTC risks imposing burdensome requirements on software developers and wallet providers that do not perform the traditional functions of a financial intermediary.
Redefining Registration Triggers for the Digital Age
A primary objective of the joint filing is to seek clarification on what actions necessitate registration with the CFTC. Phantom and HPC have called upon the Commission to confirm that the act of developing, maintaining, or contributing to onchain protocol software should not, in and of itself, trigger a requirement to register as a regulated entity. The groups contend that registration should be reserved for entities that actively manage customer funds, execute trades as a counterparty, or exercise discretionary control over customer orders.
This distinction is vital for the survival of decentralized finance (DeFi) innovation within the United States. Under the current "one-size-fits-all" approach, software developers could potentially be classified as Introducing Brokers (IBs) or Futures Commission Merchants (FCMs) simply for writing code that allows users to access decentralized markets. Phantom and HPC argue that such a classification is logically inconsistent with the technology; a developer cannot "handle" funds that remain in a user’s self-custodied wallet. By focusing regulation on the "handling" of assets rather than the "provision" of software, the CFTC could create a safer environment for developers to innovate without the looming threat of regulatory enforcement for non-compliance with impossible-to-meet standards.
Integrating Onchain Protocols into Regulated Infrastructure
Beyond the scope of developer liability, the comment letter explores how existing regulated entities—such as Designated Contract Markets (DCMs) and Derivatives Clearing Organizations (DCOs)—could utilize onchain infrastructure to enhance market efficiency. The groups proposed a clear regulatory path that would allow these traditional entities to leverage blockchain protocols for core functions.
Specifically, the filing suggests that DCMs should be permitted to use onchain protocols for trade matching and execution. This would allow for a more transparent and immutable audit trail, reducing the potential for market manipulation and front-running. Furthermore, the groups advocated for DCOs to be allowed to utilize onchain mechanisms for margining, settlement, clearing, and default management. In traditional finance, these processes often take days to settle (the T+2 or T+1 model) and require complex reconciliation between multiple ledgers. Onchain settlement, conversely, can occur in near-real-time, significantly reducing counterparty risk and freeing up capital that would otherwise be locked in collateral buffers.
The transition to onchain clearing and settlement would represent one of the most significant upgrades to financial market infrastructure in decades. By utilizing smart contracts to automate margin calls and liquidations, the risk of "fat-finger" errors or human delay during periods of high market volatility could be mitigated. Phantom and HPC argue that the CFTC should lead the global effort in setting standards for how these decentralized tools can be safely integrated into the regulated financial ecosystem.
From No-Action Letters to Formal Rulemaking
A critical component of the filing is the request for the CFTC to codify a recent "no-action" letter granted to Phantom into a formal agency rule. The existing no-action relief recognizes Phantom’s status as a non-custodial wallet provider whose role is strictly limited to providing technical access to regulated markets. This letter essentially signaled that the CFTC would not pursue enforcement actions against Phantom for failing to register as an intermediary, provided its operations remained non-custodial.
While the no-action letter provided temporary relief for Phantom, the joint filing argues that a formal rulemaking process is necessary to provide the broader industry with long-term legal certainty. No-action letters are typically specific to the entity that requested them and can be revoked or modified by the Commission at any time. A formal rule, however, would establish a permanent regulatory standard that all non-custodial wallet and front-end providers could rely upon. This would encourage more firms to enter the space, knowing that their technical contributions will not be misclassified as regulated financial services.
The Strategic Partnership Between Phantom and Hyperliquid
The collaboration between Phantom and the Hyperliquid Policy Center is a strategic alignment of two major players in the decentralized ecosystem. Phantom is one of the world’s most widely used digital asset wallets, boasting millions of active users and providing a gateway to multiple blockchain networks, including Solana, Ethereum, and Bitcoin. Phantom’s primary function is to allow users to manage their own private keys and interact with various decentralized applications (dApps).
Hyperliquid is a decentralized perpetual exchange that operates on its own purpose-built blockchain, optimized for high-performance trading. The Hyperliquid Policy Center functions as the advocacy arm of the ecosystem, focused on creating a regulated pathway for American investors to access onchain derivatives. Currently, while Phantom integrates Hyperliquid through its interface, the specific trading functionality is restricted for users within the United States due to the ongoing regulatory ambiguity surrounding decentralized derivatives.
The joint comment emphasizes that both organizations are committed to working with the CFTC to bridge this gap. Their goal is to establish a framework that allows Americans to access the transparency and efficiency of onchain markets while remaining under the protective oversight of the CFTC. This would involve ensuring that platforms provide adequate disclosures, maintain robust cybersecurity standards, and implement effective anti-money laundering (AML) and "know your customer" (KYC) protocols where appropriate at the interface level, rather than at the protocol level.
Broader Implications for the US Regulatory Landscape
The filing by Phantom and HPC comes at a pivotal moment for digital asset regulation in the United States. The CFTC and the Securities and Exchange Commission (SEC) have often been at odds over jurisdictional boundaries, particularly regarding whether certain tokens are commodities or securities. However, the CFTC has generally been viewed by the crypto industry as a more pragmatic regulator, with Chairman Rostin Behnam frequently calling for expanded authority to oversee the digital commodity spot markets.
The request for information to which Phantom and HPC responded is part of a broader effort by the CFTC to understand how "Project Guardian" and other fintech initiatives can be integrated into the US financial system. By providing detailed, technical feedback, the groups are attempting to steer the Commission toward a "technology-neutral" approach. This approach focuses on the risks posed by the activity—such as custody and control—rather than the specific technology used to facilitate it.
If the CFTC adopts the recommendations laid out in the comment, it could signal a major shift in US policy. It would acknowledge that the decentralized nature of blockchain technology requires a different regulatory lens than the centralized institutions of the 20th century. This could prevent "regulatory arbitrage," where American firms move offshore to jurisdictions with clearer rules, and instead position the United States as a global hub for onchain financial innovation.
Conclusion and Future Outlook
The joint filing by Phantom Technologies and the Hyperliquid Policy Center represents a sophisticated attempt by the private sector to collaborate with federal regulators in defining the future of finance. By focusing on the technical distinctions of onchain infrastructure and advocating for the formalization of non-custodial protections, the groups are seeking to build a bridge between the innovation of DeFi and the stability of regulated markets.
The CFTC’s response to this comment will be closely watched by market participants, legal experts, and legislators. Should the Commission move toward formal rulemaking, it could pave the way for a new era of regulated onchain derivatives, providing American retail and institutional investors with secure, transparent, and efficient access to the next generation of financial markets. For now, the filing stands as a comprehensive blueprint for how modern regulation can coexist with decentralized technology, ensuring that the principles of consumer protection and market integrity are maintained without stifling the evolution of the digital economy.
