Key Takeaways
- Hyperliquid founder Jeff Yan advocates for regulating blockchain-based financial firms rather than the underlying network infrastructure.
- Kraken’s parent company, Payward, plans to utilize Hyperliquid’s technology for regulated U.S. derivatives trading.
- The framework aims to facilitate institutional adoption of blockchain markets while maintaining regulatory compliance, though U.S. regulators have yet to endorse the model.
Hyperliquid’s founder, Jeff Yan, has introduced a regulatory framework designed to enable Wall Street institutions to engage with blockchain-based financial markets without classifying the underlying network as a traditional exchange.
During an appearance on Bloomberg’s *Odd Lots* podcast on October 15, Yan argued that regulatory oversight should target the entities operating financial markets atop blockchain infrastructure, rather than the decentralized networks enabling them.
This proposal aligns with ongoing discussions by U.S. regulators regarding the oversight of decentralized derivatives platforms.
“The regulation sits at the layer where there are controls, and indeed the deployers are the ones that exercise these controls,” Yan stated.
Hyperliquid’s Rationale for a Novel Regulatory Approach
Hyperliquid operates a blockchain-driven trading ecosystem, primarily offering perpetual futures contracts—derivatives that allow speculative trading without expiration dates.
The platform currently restricts access to its perpetual futures markets for users in the United States.
<p Yan’s framework separates the Layer-1 blockchain network from the businesses that construct trading products on top of it. Under this structure, financial institutions remain accountable for customer due diligence, market surveillance, and regulatory reporting requirements.
The blockchain itself would serve as shared infrastructure, distinct from a regulated exchange operator.
“We’re not trying to displace anything,” Yan added, emphasizing that the technology could complement existing financial market operators.
Kraken’s Parent Company Pilots the Model
The proposal is gaining practical traction. In September, Kraken’s parent company, Payward, announced plans to provide U.S. investors with regulated perpetual futures through Hyperliquid’s technology.
The initiative involves Bitnomial Exchange, a CFTC-regulated entity, along with Bitnomial Clearinghouse and NinjaTrader Clearing.
The products would leverage Hyperliquid’s HIP-3 infrastructure, which supports independent developers in creating perpetual futures markets.
Despite these developments, regulatory approval remains pending.
The arrangement underscores how established financial firms might utilize decentralized technology while adhering to traditional compliance obligations.
Regulatory Prospects: Will U.S. Agencies Accept the Model?
Yan’s remarks coincide with broader efforts to formalize cryptocurrency derivatives regulation in the United States.
On October 5, the CFTC issued an advance notice of proposed rulemaking exploring new regulatory categories for crypto asset transactions and markets.
The proposals could reshape the supervision of leveraged cryptocurrency products, though they stop short of endorsing Yan’s specific distinction.
Regulators are evaluating whether public blockchain infrastructure should be separated from the businesses operating markets on it.
Proponents argue that such a distinction could boost institutional adoption while safeguarding investors.
However, establishing clear lines of control, risk management, and liability in decentralized systems poses significant challenges.
For Hyperliquid, regulatory clarity could open pathways to the U.S. institutional market. Adoption by Wall Street will depend on regulatory endorsement and demonstrating alignment with financial industry standards.