DeFi Firms Push CFTC for Modernized Regulations Amid Threat of Legal Challenges

Hyperliquid and Phantom, two DeFi players, have urged the U.S. Commodity Futures Trading Commission (CFTC) to modernize its regulations in a letter sent to the agency.

The letter requests three things: that non-custodial software developers not be treated as brokers, that the no-action relief granted to self-custodial wallets like Phantom be made formal guidance, and that the CFTC create a framework allowing regulated entities to use blockchain for trading and settlement.

This is in response to the CFTC's request for information on issues preventing fintechs from partnering with its regulated entities. The DeFi players warn that failure to explore these recommendations would reinforce the status quo, with American users being 'walled off' from on-chain derivatives markets and innovation taking place offshore.

The requests could be delayed due to potential legal challenges from traditional market participants like the Chicago Mercantile Exchange (CME), which has already sued the CFTC over its approval of Kalshi's crypto perpetuals. Citadel Securities and other traditional exchanges have also opposed DeFi exemptions, arguing that regulators should treat every platform as a broker based on its function, not its underlying technology.