Two of the more consequential names in onchain infrastructure — Phantom, the widely used non-custodial wallet, and Hyperliquid, the decentralized perpetuals exchange — have formally asked the Commodity Futures Trading Commission (CFTC) to overhaul how it treats onchain derivatives activity. Their central argument is straightforward but carries serious implications: the rules currently on the books were written for traditional financial intermediaries, and applying them wholesale to blockchain developers and non-custodial wallet providers would be both technically illogical and economically damaging to a sector that operates on fundamentally different principles.
The timing of these submissions is not incidental. The CFTC has been navigating an evolving mandate as digital assets become a more significant share of total derivatives volume globally. With the agency now operating under renewed pressure from both Congress and the broader financial industry to clarify its jurisdictional boundaries, requests like those from Phantom and Hyperliquid arrive at a moment when the regulator may actually be positioned to act. Whether it chooses to do so with precision or retreats to blunt-instrument enforcement will define the next phase of onchain derivatives in the United States.
The Core Problem: Rules Built for Brokers, Not Protocols
The regulatory architecture that currently governs derivatives markets in the United States was constructed around a familiar cast of characters: clearing houses, futures commission merchants, swap dealers, and designated contract markets. These entities hold custody of client assets, sit between counterparties, and bear operational risk in ways that make licensing, capital requirements, and reporting obligations sensible tools for oversight. The logic is coherent when applied to institutions that can fail, freeze withdrawals, or abscond with funds.
Non-custodial infrastructure is structurally different. A wallet like Phantom never takes possession of a user's assets. The private keys remain with the end user, and the software itself is effectively an interface to permissionless blockchain networks. Applying intermediary-style obligations to such tools would be the regulatory equivalent of holding a web browser liable for the financial transactions conducted through it. Hyperliquid, operating as a fully onchain venue where settlement and margining occur through smart contracts rather than human counterparties, faces a parallel mismatch: its protocol has no internal operations that resemble those of a traditional derivatives exchange in any meaningful operational sense.
Both companies have essentially asked the CFTC to recognize this architectural distinction and to craft exemptions that reflect the technical reality of how onchain derivatives actually function. This is not a request to escape oversight entirely — it is a request for oversight that is fit for purpose.
Why the CFTC's Response Matters Beyond These Two Firms
Phantom and Hyperliquid are visible enough to make this a high-profile engagement, but the outcome matters far beyond either company's immediate interests. Hundreds of development teams building onchain financial tooling in the United States are currently operating under regulatory ambiguity. Without clear guidance from the CFTC on where the lines fall for blockchain developers and non-custodial infrastructure providers, the rational response for many founders is to incorporate offshore, route their user bases through foreign entities, or simply avoid derivatives-adjacent products entirely. None of those outcomes serve the CFTC's core mission of maintaining fair, transparent, and competitive derivatives markets.
The European Union has moved to address similar questions through its Markets in Crypto-Assets (MiCA) framework, which at minimum provides a structured legal environment even if imperfect in its technical calibration. The United Kingdom's Financial Conduct Authority (FCA) has been iterating on its own approach. The United States risks ceding regulatory agenda-setting to jurisdictions that are, ironically, crafting rules based in part on the growth of American-originated protocols.
What a Modern Framework Could Look Like
A credible CFTC response to these submissions would likely involve distinguishing between three layers of onchain activity: the protocol layer, where smart contracts execute and settle; the interface layer, where wallets and front-ends allow users to interact; and the user layer, where actual trading decisions are made. Regulatory obligations calibrated to each layer — rather than imposed uniformly on any entity that touches derivatives activity — would provide accountability without effectively banning non-custodial development in the United States.
Exemptions for developers who publish open-source code they do not control, and for wallet providers who do not custody assets or determine trade outcomes, would align the CFTC's approach with the agency's own foundational logic: regulate the risk, not the technology stack. Such a framework would require the CFTC to engage technically with how these systems work, which demands internal capacity the agency has historically been slow to build. But the submissions from Phantom and Hyperliquid provide exactly the kind of formal on-the-record input that rulemaking processes require to proceed.
The broader onchain derivatives market is growing quickly enough that delay is itself a policy choice — and one with compounding consequences. Regulators who wait for perfect clarity before acting tend to find that the market has structured itself around their absence, often in ways that are harder to supervise after the fact than before. The CFTC's engagement with these submissions will signal whether the agency intends to shape onchain derivatives or simply observe them from a distance.
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