Hyperliquid Founder: Regulation Should Target On-Chain Institutions Rather Than Public Chains

According to an exclusive Bloomberg interview report, Jeff Yan, founder of the decentralized perpetual derivatives platform Hyperliquid, proposed during a special interview with Bloomberg’s Odd Lots podcast that U.S. financial regulators should anchor the compliance obligations for cryptocurrency derivative trading onto institutional entities that utilize the Hyperliquid public chain to build and operate specific financial markets, rather than treating the entire underlying blockchain network as a regulated centralized exchange. This stance reflects a defensive strategy by the protocol to accelerate alignment with mainstream Wall Street capital while circumventing the cumbersome compliance burdens faced by fully licensed financial institutions.

Decoupling Protocol and Application Layers: Mitigating Traditional Exchange Licensing Burdens

As U.S. regulators intensify their long-arm jurisdiction over offshore crypto trading platforms, the legal boundaries between decentralized trading protocols and centralized exchanges have emerged as the focal point of contention.

In the interview, Jeff Yan outlined a layered regulatory defense framework: Hyperliquid’s underlying Layer 1 network operates similarly to open internet communication protocols (such as TCP/IP), solely responsible for validating transaction states and ensuring data availability storage; whereas the specific market makers and hedge funds deploying matching engines, providing liquidity, establishing front-end interfaces, and serving end investors directly on this chain constitute legal entities assuming financial intermediary functions.

Under this architectural design, compliance scrutiny should target the participants actually engaging in financial intermediary activities, requiring them to fulfill anti-money laundering (AML) and know-your-customer (KYC) obligations. According to the technical specifications in Hyperliquid’s Official L1 Architecture and Validator Documentation, by positioning the public chain’s foundation as a purely neutral computing base, Hyperliquid aims to shield its open-source validator network from direct administrative enforcement action by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Wall Street’s Entry Demands and Compliance Tensions in Offshore Decentralized Networks

As one of the largest decentralized derivatives platforms by on-chain trading volume, Hyperliquid maintains billions of dollars in daily open interest, with its core liquidity pools increasingly attracting capital injections from traditional hedge funds and quantitative market-making firms.

Due to a lack of compliant offshore intermediary credentials, large regulated capital faces significant compliance friction when directly accessing native decentralized ledgers. The pathway proposed by Jeff Yan aims to establish a two-tier market structure: permitting licensed Wall Street financial institutions to autonomously build sub-markets compliant with U.S. regulations on its high-performance L1 chain, with these licensed entities independently managing client onboarding and regulatory filings, while the public chain itself continues to operate permissionlessly.

U.S. Regulatory Jurisdiction Disputes and Hearing Timeline Milestones

Washington’s regulatory leadership has not fully endorsed the liability exemption claims put forth by decentralized protocols. Based on enforcement precedents within the U.S. Commodity Futures Trading Commission (CFTC) Regulatory Guidelines concerning unregistered trading facilities, federal regulators tend to pierce the shell of decentralized governance, presuming the core development teams that substantially drive and maintain protocol operations as the primary liable entities.

Currently, bipartisan members of the U.S. Congress are conducting closed-door deliberations on legislative details for incorporating offshore derivatives trading platforms into domestic frameworks. A subsequent phase assessment hearing by the U.S. Senate Committee on Agriculture, Nutrition, and Forestry regarding the classification of decentralized derivatives infrastructure is scheduled to convene on November 18 according to Beijing Time, coinciding with the U.S. Congress resuming its regular session in the Eastern Time Zone.

Join the official Coincamps community:

X: https://x.com/coincamps

Telegram: https://t.me/coin_camps