Protocols & Policy · SEC rulemaking
The Hyperliquid Policy Center backs the SEC's proposed token-offering rules but says they leave open whether those tokens can trade on onchain protocols. Comments close Oct. 20.
With public comments due Tuesday, the Hyperliquid Policy Center said in a letter to the Securities and Exchange Commission on Monday that the agency should adopt its proposed token-offering rules and settle what they leave open: whether tokens sold under them can trade on onchain protocols. For onchain venues such as Hyperliquid, that answer could decide whether the rules create a working market for those tokens or only a way to sell them.
"We generally support the Proposal and urge its prompt adoption," the group wrote in a 12-page letter dated Oct. 19. "At the same time, several features of the Proposal, as drafted, will not deliver the certainty the Commission intends" [1]. The letter is signed by chief executive Jake Chervinsky and senior counsel Brad Bourque. The group calls itself "an independent research and advocacy organization dedicated to advancing a clear, regulated path for Americans to access onchain markets, including those available on Hyperliquid" [1]. The Policy Center said it submitted the letter Monday [4]; as of 10:02 a.m. ET, the SEC's public comment file had not yet posted it, and the newest entries were dated Oct. 16 [3]. Comments are due on or before Oct. 20 [2].
Regulation Crypto Assets is a proposal, not a rule. The SEC published it Aug. 21 under File No. S7-2026-27 and describes it as "a tailored offering regime for certain investment contracts involving crypto assets" [2]. An investment contract is the category of security that brings a token under federal securities law; the test comes from SEC v. W.J. Howey Co., a 1946 Supreme Court case [2].
As proposed, a startup exemption (Rule 200) would allow offerings of up to $5 million over four years, and a fundraising exemption (Rule 300) would allow up to $75 million in any 12-month period, with financial statements and ongoing reporting for the larger tier [1][2]. A conditional safe harbor (Rule 400) would treat a token as no longer tied to an investment contract once its conditions are met, and a "qualified purchaser" definition (Rule 500) would preempt state registration [1][2]. Issuers "would remain subject to the antifraud and antimanipulation provisions of the Federal securities laws" [2].
The letter asks for five changes, summarized below from its own list, with page numbers in the letter [1].
| Ask | What the letter says |
|---|---|
| Airdrops (pp. 1, 2-5) | "codify and expand upon the Interpretation's airdrop analysis in final rule text, anchored to a requirement that an investor furnish definable, tangible consideration" |
| Secondary trading (pp. 2, 5-6) | "address secondary market transactions and intermediary status directly, so that assets distributed in reliance on the exemptions can trade immediately and outside the registrant framework" |
| Safe harbor (pp. 2, 6-8) | "make the safe harbor usable without a tacit admission of prior investment-contract or issuer status," and extend protection while the issuer's essential managerial efforts are still under way |
| Buybacks (pp. 2, 8-10) | put recent SEC staff buyback guidance into the final rule or adopting release, "harmonize the 'central party' concept and distinguish programmatic from discretionary buybacks" |
| Preemption (pp. 2, 10-11) | "make preemption durable, rather than a reward for delay" |
Under the proposal, once a token is tied to an investment contract, "secondary market offers and sales" of it "would constitute securities transactions," and the contract "will continue to be transferred to subsequent purchasers" until the token separates from the issuer's promises [2]. The release notes Commissioner Hester Peirce's 2020 call to exempt such activity from the definitions of exchange, broker and dealer, then says: "This proposal does not address those recommendations" [2].
The Policy Center argues that the proposal "fails to provide clarity with respect to whether unregistered persons can facilitate transactions in the underlying non-security crypto assets, whether such assets are permitted to freely trade via onchain protocols and how registered intermediaries should treat such assets" [1]. It asks the SEC to "consider exercising its authority under Section 36 of the Exchange Act" to exempt people who facilitate those trades, "or transactions in such assets conducted on qualifying onchain protocols," as long as the issuer stays in compliance [1]. The SEC's own economic analysis says that if a liquid secondary market does not develop, the benefits "may be fairly small" [2].
That is where Hyperliquid's stake lies. Its documentation describes "fully onchain perpetual futures and spot order books" [5]. The proposal covers token offerings; it does not set rules for perpetual futures. Its effect on a venue like Hyperliquid would come through the spot side: whether tokens sold under the exemptions could list and trade onchain without the venue or the protocol being treated as an unregistered exchange or broker. The letter's preemption point bears on the same question. As proposed, it says, finishing the safe harbor "could expose holders, deployers and venues to registration and qualification regimes across more than fifty jurisdictions" [1].
The SEC chose to leave trading-venue questions out of this release and said only that it "will continue to consider whether further action" is warranted [2]. A Section 36 exemption for onchain protocols would go beyond what the Commission proposed. The release also ties the regime to keeping investors "adequately protected and provided with the information they need to make informed investment decisions" [2], a test any broader exemption would face. And the Policy Center is not a neutral party. Its stated mission names Hyperliquid's markets [1]. Other firms are in the file as well; Davis Polk and Wardwell, for one, filed a letter on Oct. 15 [3].
Whether the SEC will adopt the proposal, and in what form, is open; the release gives no timetable for a final rule. How the SEC staff will weigh the trading-venue requests against its decision to leave them out is unknown.
The comment period closes Oct. 20. Watch whether a final release takes up Section 36 relief for onchain protocols or leaves secondary trading for a separate action. That would show whether the rules give these tokens a path to trade onchain or only a way for issuers to sell them.
Holding the Corner.
Not financial advice.