Key takeaways

  • The Hyperliquid Policy Center (HPC) has filed an official comment with the U.S. Securities and Exchange Commission (SEC) on the draft of the new Regulation Crypto Assets, backing the agency’s general initiative while warning that the text as written contains systemic legal traps.
  • The HPC wants five fundamental changes: clarity that airdrops are not investment contracts, a rework of the compliance concept, revised Safe Harbor terms, recognition of decentralized exchanges (DEX) in secondary-market trading, and indefinite federal immunity from state oversight.
  • The SEC’s August compromise would let startups raise up to $75 million a year under a simplified scheme and grant Safe Harbor status protecting matured tokens from prosecution.
  • Hyperliquid blocks U.S. residents because of strict U.S. laws, yet faces no official SEC or CFTC lawsuits or fines; pressure comes instead from CME and a September House Oversight Committee request for internal data from co-founder Jeff Yan.

What happened

The Hyperliquid Policy Center submitted an official comment to the SEC on the draft Regulation Crypto Assets. In the filing, the organization supported the regulator’s general initiative but argued that the document, in its current form, contains systemic legal traps. For the proposed draft to work, the crypto industry needs five fundamental changes, according to the HPC.

The SEC first presented the compromise plan in August. Under it, startups would be allowed to raise up to $75 million a year under a simplified scheme and would also be granted Safe Harbor status, which protects matured tokens from prosecution by regulators.

Before that, the agency assessed the crypto market using the 1946 Howey test, created for trading shares in Florida citrus plantations. Because of the legal impasse, American Web3 startups have spent years moving offshore or blocking U.S. users.

The five objections

Hyperliquid’s lawyers argue that the SEC’s new compromise is still detached from reality. The policy center’s main objections fall into five categories: the status of airdrops, the concept of compliance, the terms of the Safe Harbor, secondary market integration, and the duration of federal immunity.

On airdrops, the HPC says the regulation must clearly state that a free distribution of tokens for on-chain activity is not an investment contract, since users do not invest money and bear no financial risks. It adds that completing verification (KYC) or connecting a wallet to receive an airdrop cannot be legally interpreted as “payment” for the asset.

The other three changes concern the long-term survival of projects. Currently, to enter the Safe Harbor, a project must acknowledge that, at the development stage, the token depended on management, which automatically exposes startups to lawsuits for past years. The HPC demands that companies be given the right to declare that their tokens have never been securities.

In addition, the proposed rules do not describe the status of decentralized protocols (DEX) at all, although without the right to legally trade tokens on on-chain platforms from day one, the entire regulation loses its economic meaning, the HPC argues.

Finally, the regulation currently exempts approved projects from oversight by the authorities of individual states, but this immunity expires upon exit from the Safe Harbor. The industry demands that this protection be made indefinite, to relieve businesses of oversight from more than 50 jurisdictions at once.

Market context

Hyperliquid is defending the market preemptively. The platform is the leader in the on-chain futures sector, but because of strict U.S. laws it is forced to fully block American residents. At present, there are no official lawsuits or fines against the platform from the SEC or the CFTC.

Nevertheless, the project is under pressure from traditional exchanges (CME) and the U.S. Congress. In September, the House Oversight Committee demanded internal data from Hyperliquid co-founder Jeff Yan as part of an investigation into possible insider trading ahead of tariff announcements.

The backdrop is a years-long standoff. The SEC’s use of the Howey test, a standard built for citrus-plantation shares, left U.S. Web3 startups with little legal certainty, and many responded by moving offshore or geofencing U.S. users. The August proposal is the agency’s attempt at a compromise, and the comment process is where firms like Hyperliquid try to shape the final text.

Why it matters

The comment lands on the central tension in the draft: whether the Safe Harbor is a genuine path to compliance or a trap that forces projects to concede past liability. The HPC’s demand that companies be allowed to declare their tokens were never securities goes directly to that point. If the SEC accepts it, projects could enter the Safe Harbor without automatically exposing themselves to lawsuits over prior years; if it rejects it, the acknowledgment requirement may keep many projects out.

The airdrop question has similar reach. Free token distributions for on-chain activity are a common growth mechanism, and treating wallet connection or KYC as “payment” would pull a routine practice into securities territory. The HPC’s position is that users invest no money and bear no financial risk, so the distribution is not an investment contract.

The DEX gap is the most consequential omission, according to the filing. A rule that does not describe the status of decentralized protocols leaves on-chain trading without a legal basis, and the HPC argues the regulation loses its economic meaning without the right to trade tokens on on-chain platforms from day one.

The immunity issue is about scale. State-by-state oversight means more than 50 jurisdictions, and the current draft’s protection expires on exit from the Safe Harbor. Making it indefinite would relieve businesses of that patchwork, but it also raises the question of how much federal preemption the SEC is willing to endorse.

For Hyperliquid itself, the filing is a preemptive move. The platform leads the on-chain futures sector, blocks U.S. residents, and faces no official SEC or CFTC lawsuits or fines, yet it is under pressure from CME and from the House Oversight Committee’s September request for internal data from Jeff Yan as part of an investigation into possible insider trading ahead of tariff announcements. How the SEC treats the five objections will signal whether the Safe Harbor can attract the U.S. projects that previously went offshore.

What to watch

  • The SEC’s response to the HPC comment and whether any of the five changes appear in the next draft of Regulation Crypto Assets.
  • Whether the final text states explicitly that airdrops for on-chain activity are not investment contracts, and how it treats KYC or wallet connection in that context.
  • Whether the Safe Harbor keeps the requirement that projects acknowledge management dependence at the development stage, or adds a path to declare tokens were never securities.
  • Whether decentralized protocols (DEX) receive a described legal status for on-chain trading from day one.
  • Whether federal immunity from state oversight is extended beyond exit from the Safe Harbor, and how the SEC frames the more than 50 jurisdictions involved.
  • The House Oversight Committee’s investigation into possible insider trading ahead of tariff announcements and its request for internal data from Hyperliquid co-founder Jeff Yan.