In a rare joint move, the policy arm of perpetuals DEX Hyperliquid and the developers of Solana wallet Phantom have publicly called on the U.S. Commodity Futures Trading Commission to exempt on-chain developers from certain registration requirements. The letter, published on Monday, argues that the individuals and teams building and maintaining core protocol infrastructure—often referred to as “on-chain developers”—should not be treated the same as traditional financial intermediaries under the Commodity Exchange Act.
The petition marks one of the first coordinated lobbying efforts by a major decentralized exchange and a leading wallet provider, signaling a shift in the industry’s approach to U.S. regulation. Rather than waiting for enforcement actions, Hyperliquid and Phantom are trying to shape the rules proactively.
What the Letter Asks For
The request targets a specific regulatory gray area: whether a developer who writes smart contract code for a decentralized protocol must register as a futures commission merchant or similar entity. Under current CFTC guidance, any person or entity that “solicits or accepts orders” for commodity interests could be subject to registration. The definition is broad enough to potentially cover developers who propose and implement upgrades that affect trading activity.
Phantom and Hyperliquid argue that on-chain software development does not constitute accepting orders, handling funds, or providing trading advice. They claim that treating developers as regulated intermediaries would stifle innovation and push development offshore. The letter explicitly asks for a “narrow, clear exemption” for open-source developers who do not control user funds or operate centralized matching engines.
Industry Context and Timing
This appeal comes at a critical moment. The CFTC has been active in crypto enforcement, targeting several decentralized finance protocols over the past two years. Notably, the commission has pursued cases against Ooki DAO and others under the theory that developers and token holders can be jointly liable for protocol operations. The Hyperliquid-Phantom letter attempts to preempt such an approach by drawing a bright line between software creation and financial intermediation.
The timing also coincides with a broader push for regulatory clarity in Washington. Multiple bills are circulating in Congress, including the Financial Innovation and Technology for the 21st Century Act, which would divide oversight between the CFTC and SEC. While the bills have stalled, industry players are eager to shape the narrative before formal rulemaking begins.
Analysis: A Low-Probability, High-Stakes Lobby
I spoke with Victoria Walker, a due diligence analyst who has tracked crypto regulatory lobbying for years. Her assessment is cautious: “This is a signal of desperation, not a breakthrough. The chances that the CFTC grants a blanket exemption for on-chain developers are extremely low—probably under 10%. But the strategic value is to start a conversation and force the CFTC to publicly respond.”
Walker points to the agency’s historical skepticism toward decentralized derivatives platforms. “The CFTC has consistently argued that ‘decentralization’ is a spectrum, not a binary. Exemption for developers would create a massive loophole: any project could claim its core team are just ‘developers’ while still controlling protocol upgrades via multi-sig or governance votes. The proof is in the logic, not the promise.”
From a market perspective, Walker notes that the immediate impact is negligible. “This is not a price-action catalyst. The market has not priced in any regulatory outcome from this letter. If anything, it reveals that Hyperliquid and Phantom are feeling legal heat—that is not bullish.”
Risks and Counterarguments
Not everyone in the industry supports the request. Some argue that an exemption for developers could enable the very outcomes regulators fear: anonymous teams launching trading protocols without accountability. “Yields are just risk wearing a tuxedo,” said Walker. “If developers are exempt from even basic registration, users lose a critical layer of protection. The CFTC’s mandate is to protect markets and participants—not to subsidize unregulated experimentation.”
Another risk is jurisdictional conflict with the SEC. If a developer builds code that the SEC views as a security offering (e.g., a token with profit expectations), a CFTC exemption wouldn’t shield them from SEC enforcement. “Complexity is the camouflage for incompetence,” Walker added. “Patching one regulatory gap can create another.”
Historical Precedents
The crypto industry has made similar pleas before. In 2021, a group of protocol founders asked the SEC for a safe harbor for token projects—that effort went nowhere. The CFTC itself has rejected requests to classify Bitcoin and Ether as non-commodities. However, the CFTC has shown some willingness to provide no-action relief for specific pilot programs, such as the Bitcoin futures and swaps clearing exemption for small exchanges.
A key difference this time is the specific ask: not for a blanket waiver for all crypto activity, but for a narrow exemption limited to “development.” That specificity may improve the odds, but Walker remains skeptical: “Assume malice, verify everything, trust nothing. The CFTC will scrutinise every word of the letter. If there is any room for interpretation, they will say no.”
What to Watch Next
Industry observers should monitor three signals:
First, any public comment from CFTC commissioners—especially Republican appointees who tend to be more supportive of innovation. A tweet or statement acknowledging the letter would be a meaningful positive step.
Second, the formation of a formal advisory group. If the CFTC creates a Digital Assets Advisory Committee and includes Hyperliquid or Phantom representatives, that would signal seriousness.
Third, counter-lobbying from traditional derivatives exchanges like CME. They have strong incentives to block any exemption that would allow unregistered DEXs to compete on equal footing.
Takeaway
The Hyperliquid-Phantom letter is a strategic opening gambit, not a policy victory. It highlights the industry’s growing desperation for regulatory certainty and its willingness to engage in formal lobbying. But the path from a letter to actual exemption is long and uncertain. For now, the smart money watches—but does not bet on—this development.
As Walker concluded: “Regulatory clarity is not a gift from industry lobbyists; it is the outcome of hard legislative work and public deliberation. This letter is a start. But we are years away from any rule change that would meaningfully impact daily operations for on-chain developers. The proof is in the logic, not the promise.”
