The Hyperliquid Policy Center urges the U.S. Securities and Exchange Commission (SEC) to revise its proposed Regulation Crypto Assets framework and has submitted five recommendations covering token airdrops, secondary trading, developer protections, buybacks, and state securities requirements.
In accordance with its October 19 announcement, the organization submitted a comment letter expressing support for the SEC’s proposed rule while requesting modifications to address how decentralized crypto networks operate. The organization believes the current draft leaves several critical issues unresolved, particularly those that are especially important to developers and token holders when networks are still under development.
This submission was filed the day before the SEC’s public comment period on the “Regulation of Crypto Assets” closed on October 20. The SEC proposed this framework in August 2026 to establish specific registration exemptions for certain investment contracts involving cryptocurrencies.
Under the draft, eligible projects could raise up to $5 million over four years through a startup exemption, or up to $75 million within 12 months through another funding exemption. Currently, neither of these provisions is an approved exemption under the Crypto Assets Regulation, and the final rules may differ from the proposed versions.
The Hyperliquid Policy Center aims to establish clearer rules for token airdrops.
One of the organization’s key recommendations is how to handle the distribution of free tokens under U.S. securities law.
The Hyperliquid Policy Center urges the SEC to directly incorporate its existing interpretation of airdrops into the final regulations. The organization believes that receiving tokens without payment or provision of any other consideration typically does not satisfy the "investment of money" requirement associated with investment contracts.
In March of this year, the SEC and the Commodity Futures Trading Commission (CFTC) issued a joint interpretation clarifying how federal securities laws apply to certain cryptocurrency activities. This joint guidance on cryptocurrency classification covers airdrops, staking, and other blockchain activities, and examines under what circumstances tokens may be associated with investment contracts.
The amendments proposed by this policy center will provide specific regulatory language for qualifying token distributions. It aims to focus the rules on whether the recipient has provided tangible and clearly definable consideration in exchange for the asset.
The organization believes that wallet connectivity, sanctions screening, and other standard delivery processes should not automatically turn a free distribution into a securities offering. These requirements may be necessary steps before users claim tokens, even if recipients have not yet paid the issuing project.
Its recommendation distinguishes between administrative steps and activities performed as token compensation. If a project requires participants to provide services after announcing the distribution, it could raise different legal issues under the current interpretation.
The organization believes that formalizing this distinction will help developers and recipients establish clearer expectations when distributing tokens to network participants.
The SEC proposal still does not provide a clear answer on secondary crypto trading.
Secondary market trading is another key focus in the comments submitted to the Hyperliquid Policy Center.
The organization seeks clarification from the SEC on whether tokens initially distributed under a proposed registration exemption can subsequently be traded through decentralized protocols and other intermediaries.
The August proposal addressed certain cryptocurrency issuances and included provisions regarding resale and state registration requirements. However, it did not establish a comprehensive regulatory framework for all individuals or protocols that facilitate transactions after tokens enter investors' hands.
Previously, crypto.news analyzed these proposed exemptions, including separate funding caps and the proposed safe harbor. The SEC’s announcement emphasizes capital raising and disclosure requirements, while the legal treatment of certain secondary market activities is left to other regulatory provisions.
The policy center believes that the practicality of these issuance exemptions depends, in part, on whether recipients have access to a market where tokens can actually be transferred or sold.
Its comment letter referenced the SEC’s own economic analysis, which discussed how limited secondary market liquidity undermines the expected benefits of the proposed framework. The organization hopes the SEC will address this issue in the final rule.
The recommendation specifically mentioned blockchain protocols and individuals who facilitate transactions without registering as traditional securities intermediaries. The organization did not argue that every platform should be exempt from securities laws without condition.
When an activity falls within the statutory definitions of a securities exchange, broker, or dealer, existing requirements still apply. The proposed issuance exemption does not automatically relieve all trading services of these obligations.
Hyperliquid questions the proposed developer safe harbor
The SEC draft includes a conditional safe harbor designed to define when cryptocurrencies are no longer associated with investment contracts.
Under the proposed framework, issuers must typically complete or permanently cease their prior material managerial efforts communicated or promised to investors. Once the specified conditions are met, the relevant tokens may be considered no longer subject to the investment contract under federal securities laws.
The Hyperliquid Policy Center believes that certification requirements may pose challenges for projects that have consistently claimed their tokens were never sold through investment contracts.
The organization stated in its filing that developers may view the requested certification as an implicit acknowledgment that a securities relationship previously existed. The organization hopes the project can demonstrate that its tokens were never tied to investment contracts without making a contrary statement.
The second objection concerns timing. The organization believes that the safe harbor should provide protection while key management activities are still ongoing, as projects face regulatory uncertainty during the development phase.
The current proposal is more limited, with the safe harbor tied to the completion or permanent cessation of the committed regulatory activities. To extend protection to projects that are not yet completed, the SEC would need to amend the conditions it released in August.
In previous analyses of this regulatory framework, the proposed safe harbor was viewed as distinct from two financing exemptions. The safe harbor addresses the legal relationship between tokens and investment contracts, while the exemptions apply to qualifying issuances and sales.
The proposed changes by the organization have not yet been approved. The SEC must first consider public comments and subsequent revisions before determining the final rule.
Automated token buybacks also attract separate recommendations.
Token buybacks are another area where Hyperliquid Policy Center seeks more precise legal language from the SEC.
The organization requests that the SEC distinguish between two types of buybacks: those that occur automatically according to publicly defined blockchain rules, and those that are independently decided by centralized companies or project operators.
Some crypto protocols use predefined mechanisms to allocate transaction fees or other network revenues toward token purchases. Other arrangements are determined by companies or foundations, which decide when to buy tokens, how much capital to invest, and whether to adjust the program.
The policy organization believes that such arrangements should not be automatically considered to have the same nature when regulators assess whether a central party is directing economic activities related to cryptocurrency.
It hopes the SEC will incorporate staff guidance on token repurchases into the final rules or accompanying documentation, and requires consistent use of the term “central party,” while warning against treating validators and other independent participants as a controlling group solely because they share common economic incentives.
This distinction relates to the Hyperliquid ecosystem, as token buybacks and trading-related mechanisms have drawn attention from market participants. However, the organization’s request does not imply that any specific Hyperliquid token or program has received regulatory exemption.
The explanations in this policy center are merely recommendations from relevant parties. Whether a specific repurchase is related to an investment contract depends on the specific facts of the arrangement and the applicable law.
Federal protection may be invalidated under the SEC draft
The fifth recommendation by the organization concerns how long federal protection against certain state securities registration requirements should last.
The "Regulation of Crypto Assets" proposal grants federal preemption for eligible securities offerings and certain subsequent transactions, thereby limiting specific state registration requirements while preserving other applicable legal obligations.
The Hyperliquid Policy Center believes that these protections should remain in effect even after a project meets the proposed safe harbor. The organization is concerned that losing federal preemption at this stage could expose developers or token holders to a new set of state-level registration requirements.
Comparison with congressional legislation reveals differences between the SEC’s proposed regulatory exemption and the CLARITY Act’s approach to decentralized networks. The SEC proposal addresses specific securities law requirements, while the legislation may establish a broader statutory framework.
Under the draft, federal preemption will not eliminate all state laws affecting crypto businesses. State anti-fraud provisions and requirements regulating activities beyond the scope of covered securities offerings may still apply.
In its August proposal, the SEC set the file number S7-2026-27 and established October 20 as the deadline for written comments. The rulemaking proceeding is still open for public input, and the SEC has not adopted the five amendments proposed by Hyperliquid Policy Center.