The Hyperliquid Policy Center (HPC) has formally 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. In a comprehensive comment letter filed with both agencies, the policy advocacy arm of the decentralized trading platform Hyperliquid argued that equity-based perpetual contracts, which possess the core functional characteristics of traditional futures, should be classified and regulated as "security futures." This proposal comes at a critical juncture as US regulators grapple with the rapid evolution of digital asset derivatives and seek to provide clarity on products that do not fit neatly into decades-old legal definitions.
The push for harmonization addresses a long-standing ambiguity in US derivatives law, which traditionally bifurcates the market into futures—regulated by the CFTC—and securities—regulated by the SEC. Perpetual contracts, or "perps," have become the dominant instrument in the global cryptocurrency markets, but their status under US law remains a subject of intense debate. By advocating for a structure-based classification rather than one based solely on the underlying asset, the HPC aims to modernize the American regulatory landscape, potentially bringing hundreds of billions of dollars in trading volume back to domestic, regulated venues.
The Definitional Challenge of Perpetual Contracts
At the heart of the regulatory debate is the unique nature of the perpetual contract. Under the Commodity Exchange Act (CEA) and the Securities Exchange Act of 1934, derivatives are generally categorized as either futures or swaps. These classifications carry significant weight, determining which exchanges can list the products, which intermediaries can broker them, and which investors are permitted to trade them.
Perpetual contracts complicate this binary distinction because they blend elements of both categories. Like traditional futures, perps feature standardized terms, are highly fungible, and allow participants to exit their obligations by taking an offsetting position. However, unlike traditional futures, they lack a fixed expiration or "expiry" date. In traditional markets, a futures contract eventually settles, forcing the parties to either take delivery of the asset or roll their position into a new contract.
The HPC argues that the absence of an expiry date should not be the deciding factor in classification. In its filing, the group pointed out that "funding payments"—a mechanism where one side of the trade pays the other to keep the contract price pegged to the underlying spot price—serve the same economic function as the "basis" or time-value convergence found in traditional futures. By focusing on these economic realities, the HPC suggests that regulators can bridge the gap between traditional law and modern financial engineering.
A Chronology of Regulatory Evolution in the Perpetual Space
The dialogue regarding perpetual contracts in the United States has accelerated significantly over the past year. While these instruments have been a staple of offshore crypto exchanges like Binance and Bybit since 2018, they only recently began to gain a foothold within the US regulated environment.
In May 2024, the CFTC reached a milestone by approving the first US-listed perpetual contracts, allowing them to be traded as futures on specific regulated platforms. This move was seen as a major concession to the growing demand for crypto-native instruments within a compliant framework. However, the approval primarily focused on commodities like Bitcoin and Ethereum.
The complexity deepened when the discussion shifted to equity perpetuals—contracts that track the price of individual stocks or equity indices. Because these products reference securities, they fall under the "security futures" definition, which requires joint oversight from both the SEC and the CFTC. Recognizing the potential for jurisdictional overlap and conflict, the two agencies subsequently issued a joint request for comment. They sought feedback on how existing definitions of swaps, security-based swaps, and futures should apply to newer, cash-settled equity perpetuals.
The HPC’s recent filing is a direct response to this call for feedback, representing a strategic attempt by the crypto-derivative industry to influence the "rules of the road" before formal rulemaking is finalized.
The HPC Proposal: Structure Over Underlying Asset
The core of the Hyperliquid Policy Center’s argument is that the classification of a derivative should depend on its structural and trading characteristics rather than the specific asset it references. Under this "functional approach," a contract that trades like a future should be treated as a future, whether the underlying asset is Bitcoin, crude oil, a broad equity index, or a single stock like Nvidia or Tesla.
"Under that approach, contracts with similar characteristics would receive the same initial classification," the HPC stated. The group suggests that once the "future" classification is established, the underlying asset would then dictate which specific agency holds primary jurisdiction and what additional consumer safeguards are necessary. For instance, an oil perpetual would fall primarily under the CFTC, while an Apple stock perpetual would involve the SEC’s security futures framework.
This methodology is designed to solve several problems at once:
- Consistency: It prevents identical trading mechanisms from being regulated differently just because one tracks a commodity and the other a security.
- Competition: It would allow traditional securities exchanges (like the NYSE or Nasdaq) and futures exchanges (like the CME) to compete for the same perpetual products, fostering innovation and lowering costs for traders.
- Efficiency: It reduces the "jurisdictional friction" that has historically seen the SEC and CFTC spend years litigating or negotiating over which agency has the right to oversee a specific product.
Supporting Data: The Massive Scale of Perpetual Trading
To underscore the urgency of their request, the HPC provided data reflecting the sheer scale of the perpetual market. According to the filing, Hyperliquid’s own perpetual markets have seen more than $480 billion in trading volume over the past ten months alone. This volume is spread across a diverse array of assets, including not just cryptocurrencies, but also contracts tied to gold, silver, crude oil, major currencies (FX), and global equity indices.
This data highlights a growing trend: the "perp-ization" of finance. Traders increasingly prefer perpetuals over traditional futures because they eliminate the need to "roll" positions every month or quarter, which can be costly and operationally complex. The $480 billion figure suggests that there is a massive, untapped demand for these products within a regulated US framework. Currently, much of this volume occurs on decentralized platforms or offshore entities, often leaving US-based institutional investors on the sidelines or forcing retail investors into less protected environments.
Official Responses and the "American Oversight" Argument
The push for a harmonized framework has found some resonance within the halls of the regulators themselves. CFTC Chairman Michael Selig has been a vocal proponent of bringing these markets under the American umbrella. Selig has previously argued that the central question for regulators is not whether perpetual markets will exist—as they clearly already do on a global scale—but whether they will operate under American oversight, transparency, and consumer protection standards.
Industry analysts suggest that the SEC, under Chair Gary Gensler, may be more cautious. The SEC has historically been protective of its jurisdiction over anything that resembles a security, and the agency may be wary of allowing equity perpetuals to trade with the higher leverage typically associated with futures markets. However, the joint nature of the "security futures" framework provides a legal middle ground that could satisfy both agencies’ mandates.
Implications for the Broader Financial Market
The adoption of the HPC’s proposed framework would have far-reaching implications for the US financial system. If the SEC and CFTC agree to treat equity perpetuals as security futures, it could pave the way for a new era of retail and institutional participation.
For retail investors, it would mean access to sophisticated hedging tools that were previously only available through complex options strategies or offshore accounts. For institutional players, a clear regulatory path would allow for the creation of ETFs or other structured products based on perpetual contracts, similar to the way Bitcoin futures ETFs paved the way for spot Bitcoin ETPs.
Furthermore, a modernized security futures framework could revitalize a segment of the market that has remained relatively stagnant. Security futures were legalized in the US in 2000 under the Commodity Futures Modernization Act, but they never achieved the same level of liquidity as the options or cash markets. Integrating perpetuals into this framework could be the catalyst needed to bring these products into the mainstream.
Conclusion and Outlook
The Hyperliquid Policy Center has made it clear that they do not believe formal, years-long rulemaking is strictly necessary to provide the market with the clarity it craves. The group suggested that regulators could provide immediate relief and guidance through "interpretive guidance, policy statements, and staff action."
As the SEC and CFTC review the comments from the HPC and other market participants, the industry remains in a state of watchful waiting. The outcome of this regulatory deliberation will likely determine whether the US becomes a global hub for the next generation of derivative products or remains a bystander while liquidity continues to aggregate in offshore and decentralized venues. With nearly half a trillion dollars in volume at stake on just one platform, the pressure to harmonize is higher than ever.
