Phantom, Hyperliquid ask CFTC to modernize rules for onchain derivatives
Two crypto firms, noncustodial wallet provider Phantom and derivatives platform Hyperliquid, have formally urged the U.S. Commodity Futures Trading Commission (CFTC) to modernize how existing derivatives rules are applied to onchain activity. Their submission asked the regulator to exempt blockchain developers and noncustodial wallet providers from requirements that were written for traditional financial intermediaries, arguing those rules are ill‑fitted for decentralized, noncustodial infrastructure.
What Phantom and Hyperliquid asked the CFTC
Phantom and Hyperliquid requested that the CFTC clarify and adapt its regulatory framework so that onchain actors that do not exercise custody or control over user funds are not treated like centralized intermediaries. The companies framed their ask as a call to exempt blockchain developers and noncustodial wallet providers from rules designed for entities such as futures commission merchants, swap execution facilities and other intermediaries in legacy markets. The filing targets the legal uncertainty around onchain derivatives execution, settlement and facilitation when counterparties interact through smart contracts rather than through traditional brokers or exchanges.
Why this matters for the crypto market
The petition highlights a critical fault line in current crypto regulation: many long‑standing derivatives rules assume a centralized intermediary that holds customer assets, matches orders or clears trades. Onchain derivatives—contracts that are executed and settled by smart contracts—blur those roles. Clarifying that developers and noncustodial wallets are not equivalent to custodial intermediaries could reduce compliance burdens for decentralized exchanges (DEXs), wallet providers and protocol teams, and affect how liquidity and counterparty risk are assessed by market participants.
For major assets such as Bitcoin and Ether, much of the derivatives liquidity remains concentrated in regulated futures and options markets as well as centralized crypto exchanges. A regulatory posture that recognizes onchain execution models could facilitate deeper integration between decentralized venues and institutional infrastructure, but it could also create new questions about investor protections, market surveillance and the enforceability of sanctions or punishments on automated contracts.
Potential implications and next steps for institutions and markets
If the CFTC were to grant limited exemptions or issue interpretive guidance, custodial exchanges and registered intermediaries might face new competitive pressure from noncustodial venues that could operate with lower regulatory overhead. Conversely, regulators could also require additional controls for onchain protocols that materially affect market structure, potentially prompting developers to adopt onchain compliance hooks or hybrid custody models.
Compliance teams at institutional trading firms, prime brokers and custodians will likely reassess counterparty risk models and settlement processes if the regulatory distinction between custodial and noncustodial actors is clarified. Market liquidity and price discovery could shift gradually if onchain derivatives platforms scale, while stablecoins and custody solutions would remain central to bridging fiat and onchain markets.
Practically, market participants should monitor the CFTC’s response—whether it opens rulemaking, issues guidance or leaves enforcement patterns unchanged. Industry groups, exchanges and compliance stakeholders may submit comments or engage with the regulator, shaping any modernization of rules. For traders and infrastructure providers, the unfolding process will be important for understanding where responsibility, liability and operational controls sit in an increasingly onchain derivatives landscape.