Hyperliquid Policy Center supports the SEC’s proposed crypto fundraising exemptions but wants legal clarity for secondary trading and decentralized exchanges. HPC seeks clearer treatment of r
A crypto startup could raise $75 million under the Securities and Exchange Commission’s proposed cryptocurrency rules yet still face legal uncertainty over where investors can trade its tokens. Hyperliquid Policy Center (HPC) wants that gap closed before the framework becomes law.
In an October 19 submission, the organization urged the SEC to adopt Regulation Crypto Assets with five refinements addressing secondary trading, token distributions, protocol buybacks, investment-contract status and state securities requirements.
The filing challenges a central assumption behind issuer-focused regulation: making it easier to distribute tokens does not necessarily make the infrastructure supporting their subsequent trading legally viable.
For Hyperliquid’s ecosystem, the question extends to the operation of decentralized order books, the treatment of protocol-controlled transactions and the distinction between network participants and centralized management.
The SEC’s Regulation Crypto Assets proposal, released in August under docket S7-2026-27, outlines two exemptions for qualifying crypto-asset transactions involving investment contracts.
The startup exemption would permit offerings of up to $5 million over four years, while a separate fundraising exemption would allow up to $75 million within 12 months. Both would operate under specified conditions, including disclosure requirements and federal antifraud protections.
The problem HPC identifies begins after issuance.
A developer might distribute tokens through an exempt offering, but the exchange or protocol matching subsequent buyers and sellers could still face registration questions under the Securities Exchange Act.
HPC’s formal SEC comment letter recommends using Section 36 of the Exchange Act, which permits conditional regulatory exemptions, to address qualifying secondary-market activity.
The organization also wants clearer treatment of transactions involving crypto assets that are not themselves securities but were previously distributed through investment contracts.
Such relief would not automatically legalize every token listing. Eligibility conditions, intermediary functions and applicable antifraud obligations would still require examination.
Hyperliquid operates an on-chain central limit order book on its Layer 1 blockchain. Traders submit bids and offers, and the system matches orders according to its execution rules.
Unlike automated market makers, which generally price trades against liquidity pools, order-book venues organize transactions around competing buy and sell orders.
That architecture creates a question securities regulators cannot answer simply by examining the blockchain: who performs the functions of an exchange?
A network may distribute responsibilities among validators, protocol developers, interfaces and independent market participants. But distributing technical operations does not necessarily eliminate registration obligations for parties performing regulated activities.
HPC’s proposal could affect how U.S. regulators approach spot trading infrastructure built on public blockchains. It should not be interpreted as exempting Hyperliquid’s perpetual futures business, which raises separate questions under derivatives law.
There is already a narrower precedent. In September, the SEC granted conditional relief for certain distributed-ledger trading arrangements involving tokenized U.S.-listed equities.
That action demonstrates the Commission’s ability to tailor requirements for blockchain-based markets. It does not establish a general exemption for crypto exchanges, HYPE trading or decentralized protocols.
HPC also wants the SEC to turn its existing airdrop interpretation into binding regulatory text.
The Commission’s March 2026 interpretation addresses circumstances in which receiving tokens without providing consideration does not create an investment contract.
HPC argues that three activities should not automatically convert an otherwise qualifying airdrop into a securities offering:
The timing of the activity is important. A reward for past participation may have a different legal character from a promised payment for future services. Neither the label airdrop nor the absence of a cash payment settles every securities-law question.
Buybacks involve a different form of potential managerial control.
HPC wants regulators to distinguish purchases automatically executed under published protocol rules from repurchases directed at management’s discretion.
Consider a network that allocates a predetermined share of protocol revenue to token purchases. Its transactions may be automatic, but administrators could retain authority to change the allocation, modify the smart contract or suspend the mechanism.
HPC argues that programmatic execution should not, by itself, establish essential managerial efforts. It also wants a consistent definition of a central party, so independent validators and users are not treated as one controlling group solely because their economic interests overlap.
For investors, the relevant questions extend beyond whether buybacks are automated.
They include who can change the mechanism, what funds it receives and whether token purchases are actually executed as described.
Proposed Rule 400 would create a conditional safe harbor for crypto assets that are no longer associated with investment contracts.
To qualify, a project would generally need to certify through a transition report, Form TR, that the essential managerial efforts underlying the investment contract had been completed or permanently ceased.
HPC identifies a legal problem for developers who maintain that their tokens were never associated with investment contracts.
Filing a report certifying that an investment-contract relationship has ended could be interpreted as acknowledging that such a relationship previously existed. The organization wants projects to be able to certify instead that no investment contract was formed, without making an implied admission about earlier conduct.
It also proposes extending safe-harbor protection to qualifying projects still under development.
That would provide regulatory certainty earlier in a network’s lifecycle, when founders may remain responsible for building essential functionality. The SEC would then need to establish conditions that distinguish legitimate development from continued managerial dependence on which token purchasers expect profits.
HPC’s fifth recommendation concerns federal preemption of state securities registration requirements, commonly known as blue-sky laws.
The organization argues that protections available under the proposed framework should survive a project’s transition out of investment-contract status.
Otherwise, completing development could expose a project to renewed registration requirements across multiple states. HPC proposes preserving qualifying federal protection while leaving applicable state antifraud authority intact.
The SEC’s public comment period for Regulation Crypto Assets, docket S7-2026-27, closes October 20, 2026.
The Commission may revise the proposal, adopt a final rule or pursue separate guidance and exemptive relief. No final implementation date has been established.
For developers considering token distributions, the proposed fundraising exemptions and HPC’s requested airdrop protections are not yet operative law. Existing securities requirements continue to apply.
Trading venues face a separate decision: whether their activities require registration, qualify for an existing exemption or could eventually fall within new SEC relief.
HPC’s filing seeks to connect those two sides of the market. The SEC’s eventual treatment of secondary trading, protocol control and investment-contract transitions will determine whether the proposed framework offers a practical route for on-chain markets, rather than only a new mechanism for issuing tokens.
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