The Hyperliquid Policy Center (HPC) has submitted formal comments to the U.S. Securities and Exchange Commission (SEC) on the draft of the new Crypto Assets Regulatory Framework. The organization supports the regulator’s overall initiative but states that, in its current form, the document contains systemic legal pitfalls.
For this proposed draft to be truly viable, the crypto industry requires five fundamental changes.
In August this year, the SEC first proposed this compromise: startups would be allowed to raise up to $75 million annually under a streamlined framework, while also gaining "safe harbor" status to protect established tokens from regulatory enforcement actions.
Previously, the agency relied on the 1946 Howey Test to evaluate the crypto market—a test originally designed for shares in Florida orange groves. Due to this legal impasse, U.S. Web3 startups have been forced for years to relocate overseas or block U.S. users.
Issues with the SEC proposal: Five pitfalls facing startups
Hyperliquid's lawyers pointed out that the SEC's new compromise still lacks realism. The main objections to this policy can be summarized into five categories:
- Legal status of airdrops
- Compliance concepts
- Safe Harbor Clause
- Secondary market integration
- Federal Exemption Period
The institution believes that regulatory rules must clearly state that free token distributions based on on-chain activity do not constitute investment contracts, as users do not invest funds or assume financial risk. Additionally, completing identity verification (KYC) or connecting a wallet to claim an airdrop cannot, legally, be interpreted as a "payment" for an asset.
The other modifications relate to the project’s long-term viability. Currently, for a project to qualify for a safe harbor, it must acknowledge that its tokens rely on the management team during the development phase, which automatically exposes startups to litigation risks for actions taken over the past several years.
HPC requirements allow companies to state that their tokens have never been securities. Additionally, the proposed rule entirely fails to address the status of decentralized exchanges (DEXs); if a project has never been legally permitted to trade tokens on-chain from day one, the entire regulatory framework loses its economic relevance.
Finally, while the current draft exempts approved projects from oversight by state regulators, this exemption will expire after exiting the safe harbor. The industry is requesting that this protection be made indefinite to alleviate the burden of complying with regulations from over 50 jurisdictions simultaneously.
The article states that Hyperliquid's move is an effort to proactively defend the market. As a leader in on-chain perpetual contracts, the platform has been forced to fully block U.S. residents due to strict U.S. regulations. Currently, neither the SEC nor the U.S. Commodity Futures Trading Commission (CFTC) has filed any formal legal action or imposed fines against the platform.
However, the project still faces pressure from traditional exchanges like CME and the U.S. Congress. In September, the U.S. House Committee on Oversight requested internal data from Hyperliquid co-founder Jeff Yan as part of an investigation into potential insider trading prior to the announcement of tariffs.