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The Hyperliquid Policy Center (HPC) has submitted an official comment to the U.S. Securities and Exchange Commission (SEC) on the draft of the new Regulation Crypto Assets. The organization supported the regulator’s general initiative but stated that, in its current form, the document contains systemic legal traps.
For the proposed draft to work, the crypto industry demands five fundamental changes.
In August, the SEC first presented this compromise plan: startups will be allowed to raise up to $75 million a year under a simplified scheme and will also be granted “Safe Harbor” status, which protects matured tokens from prosecution by regulators.
Before that, the agency assessed the crypto market using the 1946 Howey test, created for trading shares in Florida citrus plantations. Because of the legal impasse, American Web3 startups have spent years moving offshore or blocking U.S. users.
What is wrong with the SEC’s proposal: ive traps for startups
Hyperliquid’s lawyers point out that the SEC’s new compromise is still detached from reality. The policy center’s main objections boil down to five key categories:
- Status of airdrops
- Concept of compliance
- Terms of the Safe Harbor
- Secondary market integration
- Duration of federal immunity
The regulation must clearly state that a free distribution of tokens for on-chain activity is not an investment contract, since users do not invest money and bear no financial risks. Moreover, completing verification (KYC) or connecting a wallet to receive an airdrop cannot be legally interpreted as “payment” for the asset.
The other three changes concern the long-term survival of projects. Currently, to enter the Safe Harbor, a project must acknowledge that, at the development stage, the token depended on management, which automatically exposes startups to lawsuits for past years.
HPC demands that companies be given the right to declare that their tokens have never been securities. In addition, the proposed rules do not describe the status of decentralized protocols (DEX) at all, although without the right to legally trade tokens on on-chain platforms from day one, the entire regulation loses its economic meaning.
Finally, the regulation currently exempts approved projects from oversight by the authorities of individual states, but this immunity expires upon exit from the Safe Harbor. The industry demands that this protection be made indefinite, to relieve businesses of oversight from more than 50 jurisdictions at once.
By defending the market, Hyperliquid is acting preemptively. The platform is the leader in the on-chain futures sector, but because of strict U.S. laws, it is forced to fully block American residents. At present, there are no official lawsuits or fines against the platform from the SEC or the CFTC.
Nevertheless, the project is under pressure from traditional exchanges (CME) and the U.S. Congress. In September, the House Oversight Committee demanded internal data from Hyperliquid co-founder Jeff Yan as part of an investigation into possible insider trading ahead of tariff announcements.