Modernizing Onchain Finance Regulation
HPC and Phantom Urge CFTC to Update Onchain Rules, Distinguishing Infrastructure from Intermediaries
Key Points
The Block notes HPC/Phantom frame the regulators' approach as outdated, with the quote: "The Commission's preexisting rules were built for legacy markets" and argue these rules are not suited for onchain markets.
"Onchain markets work differently, and they need rules of their own," HPC and Phantom contend in their joint letter, calling for tailored regulation distinct from traditional intermediaries.
A software engineer who builds a matching engine is not involved in the day-to-day operations of a futures exchange, a point highlighted by BitcoinWorld to illustrate why protocol developers should not be regulated as financial intermediaries.
Phantom emphasizes its non-custodial design by stating it does not hold user funds and does not control private keys, underscoring the technical distinction from custodial trading venues.
BeInCrypto summarizes HPC/Phantom’s stance that regulation should treat onchain infrastructure as infrastructure (like internet service providers) and focus on actual financial service providers operating on top of it, rather than protocol developers.
Hyperliquid Policy Center (HPC) and crypto wallet Phantom have jointly asked the US Commodity Futures Trading Commission (CFTC) to stop treating onchain software like traditional financial firms. In a joint comment letter, the two groups argue that current rules were "built for legacy markets" and are not suited for the fast-growing world of decentralized finance, according to The Block.
The push comes as the Trump administration has taken a friendlier stance toward crypto regulation. It follows recent moves like the launch of the first US-regulated bitcoin perpetual futures contract, signaling a potential opening for DeFi-focused rulemaking.
Why HPC and Phantom Say Current Rules Fall Short
HPC and Phantom argue that onchain markets work in a fundamentally different way from traditional exchanges. "Onchain markets work differently, and they need rules of their own," the groups wrote in their joint letter, as reported by The Block. They say applying old broker and exchange rules to protocol software creates confusion without adding safety.
A key example: a software engineer who builds a matching engine is not involved in the day-to-day running of a futures exchange. BitcoinWorld highlighted this point to show why developers who write protocol code should not face the same rules as financial intermediaries who actively manage customer money and trades.
Non-Custodial Wallets Cannot Register as Brokers, Groups Argue
Phantom stresses that it never holds user funds and never controls private keys. Because of this, the groups argue, Phantom cannot legally register as an introducing broker. Code has no legal personality. It cannot sign contracts or respond to regulatory inquiries the way a traditional firm can, according to TradingView.
HPC and Phantom are asking the CFTC to formalize a no-action relief already given to Phantom into actual rulemaking. No-action relief means the agency has informally agreed not to pursue enforcement — but it is not a permanent rule. The groups want a real legal pathway, not just temporary protection.
Treat Onchain Infrastructure Like Internet Pipes, Not Banks
The groups want the CFTC to treat onchain infrastructure the way regulators treat internet service providers — as neutral pipes that carry activity, not as financial firms responsible for what flows through them. BeInCrypto summarized this framing: regulation should focus on the actual financial service providers operating on top of the infrastructure, not the developers who build the base layer.
Under this model, exchanges and clearinghouses that are already registered with the CFTC would be free to adopt blockchain tools for matching trades, managing margin, settling positions, and handling defaults. The goal is to let regulated firms use new technology without forcing protocol builders to become regulated firms themselves.
A Broader Push to Modernize DeFi Rules Under Trump
The filings land at a moment of real policy momentum. The Trump administration has signaled it wants to encourage crypto innovation rather than restrict it. The recent approval of a US-regulated bitcoin perpetual futures contract is one concrete sign of that shift, according to TradingView.
HPC and Phantom say their goal is not to escape oversight. They want rules that protect consumers while letting innovation move forward. They are asking the CFTC to draw a clear line: regulate the financial service providers who take custody of funds and run trading venues, not the open-source developers who write the code underneath them.
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