TL;DR:
- HPC and Phantom filed a joint comment with the CFTC to request a clear distinction between software development and the provision of regulated financial services.
- The technical proposal demands the conversion of the Phantom no-action letter into a definitive rule applicable to all non-custodial wallet providers.
- The document outlines a three-step approach to modernizing U.S. derivatives markets through the use of decentralized networks.
The firms HPC and Phantom sent a formal request to the U.S. Commodity Futures Trading Commission (CFTC). The entities urged the regulatory body to update its current rules to allow for the expansion of onchain market infrastructure. The petition comes in response to a request for information previously issued by the Commission itself under the leadership of its current chairman.
A necessary separation between software and brokerage
The information provided by the companies indicates that U.S. financial regulation has historically distinguished the creation of tools from the operation of financial businesses. The developers explained that a software engineer who codes a matching engine for a futures exchange is not considered the operator of that exchange. However, the companies noted that digital asset programmers have lacked this legal clarity under past administrations.
The architecture of distributed networks allows users to retain custody of their funds and execute direct transactions with one another. Traditional derivatives systems force clients to delegate control of their capital to intermediaries, who process and settle orders on private networks. The technical report by HPC and Phantom reveals that already registered exchanges and clearinghouses could migrate their operations to onchain protocols to streamline settlements transparently.
To resolve the legal uncertainty that drove multiple tech projects to move outside U.S. borders, the joint document proposes three immediate administrative reforms.
The three regulatory reform proposals
The first requirement demands confirmation that the simple publication of code for an onchain protocol does not obligate the developer to register as an exchange or clearinghouse. The documentation provided by the parties argues that this guarantee is crucial for retaining tech talent within U.S. territory.
Secondly, it is necessary to establish a regulatory roadmap for CFTC-regulated entities to implement distributed ledger technology in their clearing and trading functions. In this way, legacy markets could replace systems that are decades old.
Finally, the firms propose formalizing the terms of the recent no-action letter granted to Phantom to transform it into a general industry rule. Data from the HPC and Phantom report suggests that consolidating this regulatory relief will provide durable legal certainty to all self-custody software providers, preventing each company from having to process individual exceptions before the Commission.
The next formal step in the process will depend on the official evaluation and response issued by the CFTC’s technical team regarding the private sector’s comments.
