Two digital asset advocacy groups are urging the Commodity Futures Trading Commission to update U.S. derivatives rules for blockchain-based trading, arguing that regulations built for broker-led financial markets do not fit onchain systems that operate through smart contracts and non-custodial software.
The Hyperliquid Policy Center and Phantom submitted a joint letter to the CFTC on Thursday in response to the agency’s request for public comment on how existing rules may be slowing financial technology development. The groups said current registration and compliance requirements assume that financial markets depend on brokers, exchanges and clearinghouses that take custody of funds, manage orders and stand between buyers and sellers.
That model, they argued, does not describe many onchain trading systems, where users interact directly with code and often keep control of their own assets. The groups asked the CFTC to revise its approach so that software protocols and non-custodial wallet providers are not regulated as if they were traditional intermediaries.
The letter comes as U.S. regulators are taking a closer look at digital asset markets, decentralized finance and crypto-linked derivatives. It also arrives during a period of legal and policy tension over how products such as perpetual futures should be classified under federal law.
The groups said automated protocols cannot act as counterparties in the same way as financial firms, because code does not exercise discretion, hold customer funds or make business judgments. They also said non-custodial software providers such as Phantom do not function like brokers because they do not take possession of user assets.
Their central message to the CFTC was that regulation should focus on the actual role played by a person or business, not simply on whether software helps users access financial markets.
Why the groups want rule changes
The joint submission argues that much of the current U.S. derivatives framework was designed for centralized markets. In those markets, traders typically route orders through brokers, rely on exchanges to match trades and depend on clearinghouses to manage settlement and counterparty risk.
Onchain markets work differently, the groups said. Transactions are executed by smart contracts, which are pieces of software deployed on blockchains. These contracts can automatically match trades, settle transactions and enforce rules without a central operator taking control of funds.
The Hyperliquid Policy Center and Phantom said that difference should matter for regulation. In their view, treating a software protocol as if it were a broker, exchange or clearinghouse creates confusion and may place impossible obligations on developers or software providers.
The submission focused on a basic distinction: a traditional intermediary may control assets, route orders or decide whether to execute transactions, while a non-custodial tool may simply allow users to interact with blockchain networks. If a provider never holds customer funds and cannot move assets without user approval, the groups argued, it should not be subject to rules written for firms that do hold and manage customer property.
The letter also said that code-based systems cannot be counterparties. In traditional derivatives markets, a counterparty is a legal or financial entity on the other side of a trade. The groups argued that automated protocols do not take positions for their own account and do not assume obligations in the way a financial institution does.
That point is central to the broader debate over decentralized finance. If a protocol is only software, regulators must decide who, if anyone, is responsible for registration, disclosure, reporting and compliance. If a company operates a front-end website, develops software or provides wallet tools, regulators must decide whether those activities amount to regulated financial intermediation.
What the CFTC is examining
The CFTC issued its request for comment in mid-June, asking market participants to identify rules that may be blocking innovation or limiting cooperation between financial technology firms and CFTC-regulated entities.
The request is part of a wider review of how the agency should oversee modern market infrastructure. The CFTC regulates U.S. derivatives markets, including futures, options and swaps tied to commodities. As digital assets become more closely linked with derivatives trading, the agency has faced growing pressure to clarify how its rules apply.
The Hyperliquid Policy Center and Phantom used the comment process to argue that the CFTC should not simply extend old categories to new systems. Instead, they said the agency should recognize that onchain infrastructure can separate functions that were historically bundled together inside financial institutions.
For example, a wallet provider may help users sign blockchain transactions, but may not custody funds. A protocol may allow trading through smart contracts, but may not operate a central order book controlled by a company. A blockchain network may record settlement, but may not be a clearinghouse in the traditional legal sense.
The groups said that applying legacy rules without adjustment could make it difficult for developers and regulated firms to build compliant blockchain tools. They also said the lack of clarity may push activity outside regulated U.S. markets, where American agencies have less visibility.
Their letter asked the CFTC to create a framework that accounts for the technical structure of decentralized systems. That could include clearer definitions for custody, control, intermediation and protocol operation.
Non-custodial software at the center of the debate
The role of non-custodial wallets is one of the most important issues raised in the submission. Non-custodial wallets allow users to control their own private keys or authorize transactions without handing assets to a third party.
Phantom, which is known for wallet software used across blockchain networks, argued alongside the Hyperliquid Policy Center that such tools should not be treated like brokerage platforms when they do not hold user funds.
In a broker-based system, a firm often maintains customer accounts, accepts orders, handles money and may have legal duties tied to custody or execution. In a non-custodial wallet model, the user generally remains responsible for approving each transaction. The wallet software may display balances, connect to applications or help sign messages, but it does not necessarily take possession of assets.
The groups’ submission said that this distinction should guide regulation. If regulators ignore the difference between custody and non-custodial access, they may impose obligations on software providers that cannot realistically comply because they do not control the relevant assets or transactions.
The issue has become more important as decentralized finance grows. Many users access trading, lending or settlement protocols through wallets rather than through traditional account-based platforms. Regulators are now trying to decide when that access becomes a regulated financial service and when it remains software.
Registered firms and blockchain tools
The letter also addressed firms that are already registered with the CFTC. The groups said regulated entities should be able to integrate blockchain-based tools for trading, settlement and recordkeeping without automatically triggering extra layers of oversight.
That argument reflects a practical concern in the market. If registered firms face unclear or duplicative requirements whenever they use distributed ledger technology, they may be less likely to adopt it. The groups said that could slow the development of faster settlement systems and more transparent market infrastructure.
Blockchain systems can record transactions in a shared ledger and allow settlement to occur through programmable rules. Supporters say this may reduce operational risk and improve transparency if properly designed. Regulators, however, must consider whether such systems create new risks tied to cybersecurity, governance, market manipulation, liquidity or customer protection.
The submission did not call for the CFTC to abandon oversight. Instead, it asked the agency to align regulation with the actual functions performed by different parties. Under that approach, a firm that takes custody or controls trading may still face significant obligations, while software that does not control assets may be treated differently.
Wider regulatory review of digital assets
The CFTC’s request for information is not occurring in isolation. Federal agencies have recently stepped up efforts to gather feedback on digital asset innovation and derivatives classification.
Last month, the CFTC and the Securities and Exchange Commission jointly published a consultation seeking public input on potential updates to the definition of “swaps” and related derivatives categories. That consultation could affect how crypto-linked products are treated under U.S. law.
The distinction between futures and swaps is especially important. Futures contracts and swaps can be subject to different legal requirements, trading venues, reporting duties and compliance structures. As crypto derivatives become more complex, the classification of these products carries major consequences for trading platforms, clearing arrangements and market access.
The CFTC has also been assessing blockchain applications in commodities trading more broadly. Under Chair Selig, the agency has shown interest in both encouraging innovation and preserving oversight of derivatives markets.
One major step came in May, when the CFTC approved the first U.S.-regulated Bitcoin perpetual futures contract. Perpetual futures are widely used in digital asset markets because they allow traders to maintain exposure without a fixed expiration date. Their popularity outside the United States has made them a recurring subject in policy discussions about whether U.S. markets should offer similar products under federal supervision.
Legal fight over perpetual futures
The regulatory push has met resistance from established market operators. CME Group filed litigation in June challenging the CFTC’s approval of perpetual futures, arguing that the products should be classified differently under federal law.
The dispute centers on whether perpetual contracts are futures or swaps. CME Group has argued that perpetual contracts should be treated as swaps and therefore governed by a different framework under the Dodd-Frank Act.
That case could influence how the CFTC approaches crypto-linked derivatives in the months ahead. If a court agrees that certain perpetual products are swaps rather than futures, the agency may need to reconsider how such contracts are approved and supervised. If the CFTC’s position holds, regulated U.S. venues may have more room to list products that resemble instruments already common in global digital asset markets.
For traders, the outcome matters because classification affects where products can trade, how they are margined, what disclosures apply and what protections are required. It could also affect whether activity moves into regulated domestic channels or remains concentrated in less transparent markets outside the United States.
Market growth adds pressure for clarity
The debate is taking place as decentralized finance and stablecoin activity continue to expand. The global decentralized finance market is projected to reach $60.73 billion in 2026, according to figures cited in the policy discussion. Adjusted stablecoin transaction volume reached a record $1.79 trillion in June 2026, highlighting the scale of blockchain-based financial activity.
Those numbers help explain why regulators are under pressure to define clear rules. Onchain finance is no longer a small experimental corner of the market. It now includes trading protocols, lending applications, tokenized assets, stablecoin payments and settlement tools used by a wide range of market participants.
At the same time, the growth of these systems raises policy questions. Regulators must decide how to monitor market abuse, protect customers, manage systemic risks and ensure that legal responsibilities are enforceable when software operates across borders.
The Hyperliquid Policy Center and Phantom argue that clarity would support responsible development. They say outdated rules may discourage compliant firms while failing to address the actual risks created by onchain systems.
What comes next
The CFTC will now review comments submitted through its information-gathering process. Any next step could take several forms, including staff guidance, proposed rule changes, further consultations or enforcement priorities that clarify how the agency views decentralized infrastructure.
The agency’s response will be closely watched by traders, developers, compliance teams and regulated financial firms exploring blockchain tools. The most important question is whether the CFTC will create distinctions between custodial intermediaries, non-custodial software providers and autonomous protocols.
The legal challenge from CME Group will also remain a key factor. A court ruling on the status of perpetual contracts could reshape the market for regulated digital asset derivatives in the United States. It may also influence how quickly the CFTC moves to update its rulebook.
For now, the submission from the Hyperliquid Policy Center and Phantom adds to a growing policy argument: digital asset markets cannot be governed effectively if regulators assume every system works like a traditional broker-exchange-clearinghouse structure.
The challenge for the CFTC is to decide how much of the old framework still applies, where new definitions are needed and how to protect markets without treating every piece of financial software as a financial intermediary.
For deeper context on shifting US oversight, explore how future of crypto regulation could reshape onchain derivatives markets.
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