Hyperliquid Slams SEC Crypto Proposal: Demands Five Critical Regulatory Fixes!

The Hyperliquid Policy Center (HPC) has submitted an official comment to the U.S. Securities and Exchange Commission (SEC) on the draft of the new Regulation Crypto Assets. The organization expressed general support for the regulator’s initiative but asserted that, in its current form, the document contains significant systemic legal traps. For the proposed draft to be effective and workable, the crypto industry, through HPC, is demanding five fundamental changes.

The SEC first introduced this compromise plan in August, proposing that startups be allowed to raise up to $75 million annually under a simplified scheme. Additionally, the plan included granting “Safe Harbor” status, which aims to protect matured tokens from potential prosecution by regulators. Historically, the agency had assessed the crypto market using the 1946 Howey test, a framework originally designed for trading shares in Florida citrus plantations. This outdated legal approach created an impasse, forcing American Web3 startups to spend years either relocating offshore or blocking U.S. users.

Hyperliquid’s lawyers highlight that the SEC’s new compromise, despite its intentions, remains detached from the current realities of the crypto industry. The policy center’s main objections are structured around five key categories, which they identify as critical flaws that need urgent rectification:

Firstly, regarding the **Status of Airdrops**, HPC demands that the regulation clearly state that a free distribution of tokens for on-chain activity does not constitute an investment contract. This distinction is vital because users do not invest money and therefore bear no financial risks in such events. Furthermore, completing verification processes like KYC or connecting a wallet to receive an airdrop cannot be legally interpreted as “payment” for the asset.

Secondly, concerning the **Concept of Compliance**, a current requirement for entering the Safe Harbor implies that a project must acknowledge its token was dependent on management during its development stage. This acknowledgment automatically exposes startups to potential lawsuits for past years. HPC insists that companies must be granted the explicit right to declare that their tokens have never been securities, thereby mitigating retrospective legal vulnerabilities.

Thirdly and fourthly, addressing the **Terms of the Safe Harbor** and **Secondary Market Integration**, the proposed rules are notably silent on the status of decentralized protocols (DEXs). HPC argues that without the right to legally trade tokens on on-chain platforms from day one, the entire regulatory framework would lose its economic meaning and practical utility for the industry.

Finally, regarding the **Duration of Federal Immunity**, the current regulation offers approved projects temporary exemption from oversight by individual state authorities. However, this critical immunity is slated to expire upon a project's exit from the Safe Harbor. The industry advocates for this protection to be made indefinite, arguing it is essential to relieve businesses from the burden of navigating oversight from over 50 different jurisdictions simultaneously.

Hyperliquid’s active engagement in defending the market is a preemptive measure. As a leader in the on-chain futures sector, the platform is currently obligated to fully block American residents due to stringent U.S. laws. Although there are no official lawsuits or fines against Hyperliquid from the SEC or the CFTC at present, the project is under pressure from various entities, including traditional exchanges like CME and the U.S. Congress. For instance, in September, the House Oversight Committee demanded internal data from Hyperliquid co-founder Jeff Yan as part of an investigation into possible insider trading activities preceding tariff announcements.