The Hyperliquid Policy Center (HPC) has officially called upon the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to establish a unified and harmonized regulatory framework for perpetual contracts. This move comes as federal regulators engage in a critical deliberation over how these increasingly popular financial instruments should be classified under the complex web of United States derivatives law. In a detailed comment letter filed with both agencies, the HPC argued that equity perpetual contracts—provided they maintain the traditional characteristics of futures—should be formally recognized and permitted to trade as security futures.
The proposal arrives at a pivotal moment for the American financial industry. As digital assets and innovative trading mechanisms continue to blur the lines between traditional commodities and securities, the lack of a clear regulatory taxonomy has often forced high-volume trading activities to offshore jurisdictions. By advocating for a structure that prioritizes the functional characteristics of the contract over the underlying asset, the HPC aims to bring a significant portion of this global liquidity back into the regulated US market.
The Traditional Divide: Futures vs. Swaps
To understand the significance of the HPC’s proposal, one must first look at the foundational structure of US derivatives regulation. Historically, the regulatory landscape has been bifurcated into two primary categories: futures and swaps. These categories are not merely academic; they dictate which federal agency has oversight, what level of collateral is required, which venues can host the trading, and who—ranging from institutional players to retail investors—is permitted to participate.
Futures contracts are generally overseen by the CFTC and are characterized by standardized terms, exchange-based trading, and a clearinghouse that acts as the intermediary to mitigate counterparty risk. Swaps, conversely, have historically been more bespoke, over-the-counter (OTC) instruments, though the Dodd-Frank Act of 2010 brought many of them under a more rigorous regulatory umbrella, often splitting jurisdiction between the CFTC and the SEC depending on the underlying reference asset.
Perpetual contracts, or "perps," challenge this traditional binary. Originally popularized within the cryptocurrency markets as a way to gain leveraged exposure to assets without the friction of monthly or quarterly expirations, perps have evolved into a massive asset class. They share several defining traits with futures: they are highly standardized, fungible, and allow participants to exit a position simply by taking an offsetting trade. However, they lack the fixed expiry date that has traditionally defined a futures contract.
The Mechanics of Perpetuals and the Role of Funding Rates
The primary technical hurdle in classifying perpetuals as futures is the absence of a delivery date or a final settlement. In a standard futures contract, the price of the derivative converges with the spot price of the underlying asset as the expiration date approaches. Without an expiration date, perpetual contracts require a different mechanism to ensure price alignment.
The HPC argues that "funding payments" serve this exact purpose. In a perpetual market, funding rates are periodic payments exchanged between long and short position holders. If the perpetual price is trading higher than the spot price, longs pay shorts; if it is lower, shorts pay longs. This mechanism creates a financial incentive that keeps the contract price tethered to the underlying market. The HPC’s contention is that because funding payments perform the same economic function as the "basis" convergence in traditional futures, the lack of an expiry date should not be a disqualifying factor for classification as a future.
A Chronology of Recent Regulatory Movement
The push for a harmonized framework follows a series of incremental steps taken by US regulators over the past year. The timeline of these events suggests an increasing willingness to engage with these modern products, albeit with caution.
- May 2024: The CFTC approved the first US-listed perpetual contracts, allowing them to trade specifically as futures. This was seen as a landmark victory for the industry, signaling that the "future-like" nature of perps was beginning to gain regulatory acceptance.
- Summer 2024: Following the initial approval, the CFTC noted that while certain commodity-based perpetuals (like those for Bitcoin or oil) fell clearly under its purview, "equity perpetuals"—those referencing individual stocks or narrow-based indices—might require a joint review with the SEC.
- Late 2024: The SEC and CFTC jointly sought public feedback and formal comments regarding the definitions of swaps, security-based swaps, and futures. They specifically requested input on how these definitions should apply to newer products, including cash-settled equity perpetuals.
- Present Day: The Hyperliquid Policy Center’s filing serves as a direct response to this call for feedback, providing a blueprint for how the agencies can move forward without the need for lengthy, new legislative mandates.
The HPC Proposal: Structure Over Asset
At the heart of the HPC’s argument is a shift in regulatory philosophy. Instead of focusing on what an asset is (the reference asset), the HPC suggests that regulators should focus on how the contract behaves (its structure and trading characteristics).
Under this proposed "functional" approach, a contract with standardized terms and a funding rate mechanism would be classified as a future regardless of whether it tracks Bitcoin, crude oil, a broad equity index, or a single stock like Nvidia. The underlying asset would then determine which agency holds jurisdiction and what specific safeguards (such as margin requirements or investor disclosures) are necessary.
Specifically, the HPC argues that qualifying equity perpetuals can fit neatly into the existing "security futures" framework. This framework was established by the Commodity Futures Modernization Act of 2000 and is already jointly overseen by the SEC and CFTC. By utilizing this existing category, the HPC believes regulators can avoid "reinventing the wheel" and provide a clear path to market for innovative products.
Market Data and the Economic Imperative
The economic stakes of this regulatory decision are substantial. The HPC cited data from the Hyperliquid ecosystem to illustrate the sheer scale of the perpetual market. Over the past ten months, Hyperliquid’s perpetual markets have seen more than $480 billion in trading volume. This volume includes not just digital assets, but contracts tied to traditional commodities like oil and metals, as well as foreign currencies and equity indices.
The global perpetual market is even larger. In the cryptocurrency sector alone, perpetual swaps often account for 75% to 90% of the total daily trading volume on major exchanges, frequently eclipsing the spot market. By failing to provide a clear regulatory path for these products, the HPC suggests that the US is essentially ceding a multi-trillion-dollar market to offshore entities that may not adhere to the same standards of consumer protection or market integrity.
Addressing Jurisdictional Friction
One of the primary benefits of the HPC’s proposal is the potential to reduce "turf wars" between the SEC and the CFTC. Jurisdictional disputes have historically been a major bottleneck for financial innovation in the United States. When an instrument sits in a gray area, both agencies may claim authority, leading to conflicting rules, or neither may take the lead, leaving the product in a state of legal limbo.
The HPC’s group stated that a harmonized approach would allow both securities and futures exchanges to compete for perpetual products on a level playing field. This competition could drive down costs for investors and spur further technological innovation within the US exchange ecosystem. Furthermore, the HPC noted that the regulators could provide this clarity through interpretive guidance, policy statements, and staff actions, which would be significantly faster than waiting for a formal, multi-year rulemaking process.
Expert Perspectives and Broader Implications
The sentiment expressed by the HPC aligns with recent comments from some high-ranking regulatory officials. CFTC Chairman Michael Selig has previously emphasized that the growth of perpetual markets is an inevitability. According to Selig, the central question facing Washington is not whether these markets will exist, but whether they will operate under American oversight and transparency standards or continue to thrive in the shadows of the global offshore market.
Industry analysts suggest that if the SEC and CFTC adopt the HPC’s recommendations, it could trigger a wave of new listings on regulated US exchanges like the Chicago Mercantile Exchange (CME) or the Cboe. This would provide institutional investors, such as pension funds and insurance companies, with a regulated way to hedge equity and commodity risks using the capital-efficient structure of perpetual contracts.
Moreover, a modernized security futures framework would represent a significant step toward "future-proofing" US financial law. As the digitization of assets continues, the distinctions between different types of financial instruments will likely continue to blur. A framework that prioritizes functional characteristics over static asset definitions provides a more flexible and resilient foundation for the next generation of financial products.
Conclusion and Outlook
The Hyperliquid Policy Center’s filing represents a sophisticated attempt to bridge the gap between 20th-century regulation and 21st-century financial technology. By leveraging the existing security futures framework and advocating for a structure-first classification system, the HPC has provided a pragmatic roadmap for federal regulators.
The ball is now in the court of the SEC and the CFTC. Their response will determine whether the United States can reclaim its position as the primary hub for derivatives innovation or if the high-growth perpetual market will remain largely an offshore phenomenon. As the comment period progresses, the financial industry will be watching closely to see if the agencies can achieve the "harmony" that the HPC—and much of the broader market—is now demanding. For now, the push for clarity remains a defining battleground for the future of American capital markets.
