With regulation easing, the path for Hyperliquid may have actually narrowed?

Over the past few days, the world's largest on-chain perpetual contract platform by trading volume has been undergoing a rare value discovery.

This platform is called Hyperliquid, and its token valuation has already surpassed Solana, closing in on BNB. At least in terms of token price, its rivalry with CEXs like Binance is no longer one-sided.

But a sword has always been hanging over Hyperliquid's head.

At the end of May, the CFTC approved the first compliant perpetual contract within the United States for the first time. Many saw this as another victory for Hyperliquid, unaware that the clarification of rules signals a host of more formidable enemies on the way, marking the beginning of a protracted war.

The CFTC's Contract Amnesty

On May 29th, the CFTC approved Kalshi to list the first true Bitcoin perpetual contract, BTCPERP. On the same day, it issued a no-action letter to Coinbase's CFM, allowing the latter to connect US customers to global options and perpetual contracts, via Coinbase's Bermuda entity, treated as "foreign futures," and permitting customers to use Bitcoin, Ethereum, and stablecoins as margin. Supporting actions included a Commission policy statement on listing perpetual contracts, related interpretive guidance, and a staff guide covering 24/7 trading, clearing, and settlement.

CFTC Chairman Selig stated in an op-ed that the existence of perpetual contracts was never the issue. The real question is whether they operate under US regulation, standards, and the rule of law, or are driven overseas to grow unchecked. Trump took credit on Truth Social, claiming the previous administration's "anti-crypto army" nearly destroyed the US crypto industry, and he saved it.

Hyperliquid's policy advocacy group, the Hyperliquid Policy Center, welcomed this development while expressing hope that the framework would cover not only centralized intermediaries but also on-chain protocols that handle a significant volume of perpetual contract trading.

Kyle, Hyperliquid's biggest critic and former Multicoin partner, threw cold water on the Hyperliquid community: "What you have now is a guarantee that there will never be a regulated US company distributing Hyperliquid liquidity."

So, what does the CFTC's approval actually mean for Hyperliquid?

Offending CME is Scarier than Offending Binance

A perpetual contract is a futures contract with no expiration date. Traditional futures must be settled or rolled over upon expiry. Perpetual contracts never expire, maintaining balance through a "funding rate" where long and short positions periodically pay each other a fee to keep the contract price anchored near the spot price. This allows traders to hold a directional position long-term with less capital in a 24/7 market, which is why they are far more popular in crypto than traditional futures.

Friends who often launch trading platforms know that to legally operate a perpetual contract platform in the US, you need three types of businesses and licenses: a DCM for the trading platform itself, a DCO for the clearinghouse (the central clearing counterparty), and an FCM for the intermediary broker. All three are indispensable.

However, the regulatory framework for operating such a platform was designed from the outset to exclude venues like Hyperliquid, which lack DCO status, from broker access lists. This is because these Perp DEXs fundamentally do not require a "clearinghouse."

Before this policy change, Coinbase, to compliantly list perpetual contracts, first acquired a DCM-licensed platform, then used the clearinghouse Nodal Clear to structure its product as a five-year, cash-settled futures contract, simulating the funding rate through the clearinghouse's cash adjustments.

The CFTC's new policy did not touch the existing framework dependent on "centralized clearinghouses."

Hyperliquid's desired "no-clearinghouse" new model faced opposition from two giants of the traditional financial industry.

According to Bloomberg, the Chicago Mercantile Exchange (CME) and ICE (the parent company of the NYSE) have been conducting so-called "concern lobbying" on Capitol Hill. Their core demand is to force Hyperliquid into the DCM registration framework, mandating KYC and AML, and imposing transaction monitoring and position limits.

Neither CME nor ICE are crypto-native players. CME's foundation lies in commodities and equity index futures – crude oil, gold, agricultural products, interest rates, stock indices – contracts that have been its cash cows for decades. ICE owns a range of trading platforms including the NYSE. Initially, Hyperliquid only offered perpetual contracts for crypto assets, staying out of their lanes.

What truly crossed the line for Hyperliquid was the subsequent launch of markets like TradeXYZ, built on its native protocol "HIP-3". With HIP-3, anyone can list new perpetual contracts on top of Hyperliquid's underlying liquidity. The underlying assets can be stocks, or real-world assets like crude oil and gold. During the Iran conflict, trading volume on TradeXYZ's crude oil and gold perpetual contracts surged. Hyperliquid effectively moved CME's most profitable business onto the chain, operating 24/7, permissionlessly, with on-chain settlement.

Open interest on TradeXYZ continues to grow

Offending CME is far scarier than offending Binance.

Another recurring concern is the question: "Who takes the fall?"

Regulatory instinct is to find an accountable entity: when something goes wrong, who gets subpoenaed, who gets penalized. In the traditional framework, the regulated entities are tangible intermediaries like FCMs, DCOs, and DCMs. But under the umbrella of "decentralization," the question of "who takes the fall" remains a legal blank spot.

Hyperliquid sits awkwardly in the middle. It's closed-source, initially had only a few validator nodes located in the same place, far from being "unaccountable," yet it doesn't have a clear legal entity standing in front like a traditional exchange.

Recently, the SPACEX-USDH pre-IPO contract on Hyperliquid flash crashed 45% in thirty minutes. An oversized position ate up the thin liquidity, causing losses for many users. The "ADL" mechanism, often criticized in its contract design, inherently harms some retail participants' interests. A platform that "cannot be held accountable" is clearly unacceptable to the CFTC.

Finally, the CFTC's recent action wasn't a formal rule but a combination of a policy statement, a "no-action letter," and guidance. It lacks the force of law, meaning the next CFTC chair could overturn everything with a single statement. Until it becomes a formal rule or is codified by Congress, all progress today is temporary.

The Good News

The product form that Hyperliquid relies on – perpetual contracts with stablecoins as margin – has essentially received the CFTC's stamp of approval. Doubts about whether the US would completely ban perpetual contracts are no longer a concern. The biggest worry plaguing this sector has been removed.

The pie itself is still growing. Today, the vast majority of Americans, whether retail or institutional, have no idea what a perpetual contract is. Once compliant channels are opened, the scale by which this market will expand will be measured in orders of magnitude.

A deeper positive signal comes from the CFTC's regulatory philosophy. The CFTC has never prescribed specific actions rule by rule, but focuses on principles and outcomes: no market manipulation, no stealing customer funds, maintaining market integrity. As long as these principles are upheld, theoretically, whether you are a traditional exchange or an on-chain protocol, you can be brought under its regulatory umbrella. More critically, once the CFTC asserts jurisdiction, it is exclusive, preempting state laws and other regulations. For an industry that fears regulatory whiplash most, this certainty is indispensable.

Furthermore, the anticipated Clarity Act includes an "8-prong decentralization test." If a protocol passes this test, it could offer perpetual contract trading services without holding clearing and trading licenses. This leaves a narrow door open for Hyperliquid.

The optimistic narrative proposed by well-known trader Ansem has resonated with many in the HL community. He stated: "If Hyperliquid becomes the underlying liquidity engine for various financial trading platforms, called by countless front-ends like AWS is for cloud computing, and its settlement stablecoin is USDC, then every bit Hyperliquid grows is creating demand for the USD out of thin air." A crypto-friendly government that understands this connection has no reason not to protect it.

A Crossroads

Hyperliquid faces three paths.

First, remain offshore, keeping Americans "out." Maintaining the status quo isn't bad for Hyperliquid. Liquidity is improving, and 24/7 trading and pre-IPO contracts will only increase its visibility. But as Kyle said, choosing this path means being a product that attracts users but can never be legally integrated into the US financial system.

Second, go fully onshore. Hyperliquid has enough capital to buy the necessary licenses, replicate Polymarket's playbook, and create a clean "Hyperliquid US." This means sacrificing "decentralization," compromising with the "clearinghouse-centric" framework, and potentially losing offshore liquidity.

Third, continue pursuing decentralization until passing the "8-prong decentralization test" in the Clarity Act. This path is the most exciting but faces the greatest resistance.

Since its TGE, Hyperliquid's validator set has expanded from single digits to 26, with the vast majority being external teams. If Hyperliquid can accelerate its decentralization efforts and walk through this "narrow door," it could become the first perpetual contract market accepted by the US compliance system as a pure protocol, without relying on a clearinghouse.

Hyperliquid's Validator Nodes