Hyperliquid Looks for Path to U.S. Markets for Its Perpetual Futures

The Senate’s postponement of a vote on the crypto regulatory law, the Clarity Act, ensures that the legislation is all but dead for the moment. But it didn’t cover some of the fastest-growing parts of the crypto market. And firms in those sectors have been hard at work lobbying regulators to push for favorable treatment of their businesses.

For example, Hyperliquid, a fast-growing overseas crypto trading service, and Morpho, a popular crypto lending platform, have both lately stepped up outreach to federal agencies, seeking measures that could protect or expand their businesses under existing U.S. laws, according to policy and legal representatives for the companies.

The Clarity Act aims to settle some major regulatory questions for crypto markets and exchanges, including which parts of the crypto spot market fall under the Securities and Exchange Commission versus the Commodity Futures Trading Commission.

But even if it was to pass—which seems unlikely in the near term—it wouldn’t deal with products offered by firms like Hyperliquid Labs and Morpho, including perpetual derivatives and decentralized lending infrastructure. And those platforms have stayed hot with investors even as trading activity on centralized exchanges such as Coinbase has plunged.

As a result, their leaders are seeking other measures like regulatory no-action letters, exemptions, new guidance or rules that address their businesses.

Hyperliquid, an exchange and blockchain founded by Harvard graduate Jeff Yan in 2023, is one of the fastest-growing businesses in crypto, reportedly generating over $900 million in profit last year. Its perpetual futures contracts are popular with traders because they allow betting on the price of crypto or other assets using leverage, without traders having to roll over expiring contracts as with traditional futures.

Hyperliquid currently doesn’t operate a CFTC-regulated U.S. derivatives exchange, however, and its interface prohibits U.S. based users from trading through it directly. One regulatory pathway would be petitioning regulators to allow U.S.-regulated firms to offer perpetual futures to their clients on markets that trade, clear and settle on Hyperliquid’s public blockchain.

Hyperliquid representatives recently have had discussions with both the CFTC and the SEC, according to the agencies’ meeting logs. “Our number one goal is to help the agencies understand the benefits of on-chain financial infrastructure,” said Jake Chervinsky, CEO of Hyperliquid Policy Center, which advocates for Hyperliquid, so that they can either interpret their existing regulations in a way that allows U.S. users to access them or, if necessary, provide new regulatory guidance or make new rules entirely.

Hyperliquid Policy Center, along with Phantom, a crypto wallet provider, filed a joint comment letter last month to the CFTC, asking it to allow regulated companies to use on-chain markets for matching and settling trades while exempting developers and apps that don’t hold customer funds from registration requirements.

Ideally, Chervinsky hopes the CFTC will issue orders granting approvals to CFTC-registered firms to offer the trading of perpetual futures on blockchain immediately. “I believe they could do that,” he said, pointing to how the agency in May already granted approvals to Kalshi and Coinbase to trade perpetual futures in the U.S. A person familiar with the agency’s thinking said that any conversations are ongoing, and the CFTC continues to work with market participants and exchanges to explore innovative proposals.

Still, Chervinsky acknowledges that such approvals are “a challenge for regulators to take up” because on-chain markets like Hyperliquid raise a number of issues traditional laws and regulations aren’t designed to address.

For instance, on Hyperliquid, users manage their own assets in digital wallets and the blockchain keeps track of records. But existing rules assume that regulated firms such as brokers or exchanges will perform those custody and recordkeeping functions.

Another wrinkle is that Hyperliquid users are trading perpetual contracts based on prices of stocks such as SpaceX, in addition to prices of crypto and real-world commodities such as oil or silver. Real-world asset contracts accounted for 32% of trading volume for perpetuals on the platform in the second quarter.

While commodity contracts would fall under the CFTC’s guidance, stock-related products could push into securities law turf under the SEC. Hyperliquid executives, lawyers and policy representatives also met with a crypto-focused task force at the SEC in mid-July to discuss the company’s technology, protocol and customer base, according to an SEC meeting log.

Morpho’s Gray Area

The Clarity Act meanwhile leaves decentralized lending, where crypto borrowers and lenders connect via blockchain without an intermediary such as a bank, largely for regulators to handle under existing laws. Crypto vaults have grown in popularity since the collapse in 2022 of major centralized vendors Celsius Network and Voyager Digital, which held crypto assets directly.

Morpho, one of the biggest decentralized lending platforms, doesn’t hold crypto directly, and lending decisions happen through smart contracts on blockchain. Users can deposit their crypto in its vaults to lend out, earning interest in exchange. Its deposits have nearly doubled over the past year, to more than $12.2 billion currently.

Morpho General Counsel Chris Robins and his team met with the SEC last month to discuss the agency’s agenda on vaults. He anticipates regulatory agencies may pursue rulemaking to resolve “this gray area” if the Clarity Act doesn’t pass. SEC Commissioner Hester Peirce warned in July that some of the vault activities may trigger securities laws, and the agency has started to consider whether it needs to modify its rules.

“To the extent that there are regulated activities that are being administered through this neutral infrastructure, the responsibility would be on those users, whether it be curators, vault owners, etc., to obtain the requisite licenses or authorization,” Robins said. Vault curators such as Gauntlet and Steakhouse Financial allocate funds to generate returns and manage risk.

Coinbase and Robinhood have both partnered with Morpho by integrating it into their apps, allowing users to lend crypto through Morpho to generate interest. Even if the Clarity Act doesn’t pass, Morpho’s partnership with Coinbase and Robinhood will continue as before, Robins said.

However, he said, the Clarity Act would give traditional institutions the confidence to tap into on-chain lending pools. “Some [institutions] will take the route of doing that through a regulated channel, so you could theoretically have vaults that are registered as funds.”