The Hyperliquid Policy Center has urged the U.S. Securities and Exchange Commission to revise its proposed Regulation Crypto Assets framework, submitting five recommendations covering token airdrops, secondary trading, developer protections, buybacks and state securities requirements.
Summary
- Hyperliquid Policy Center says it has submitted five recommendations concerning the SEC’s proposed Regulation Crypto Assets framework.
- The proposals seek clearer legal treatment for airdrops, secondary token trading, buybacks and developing blockchain networks.
- SEC exemptions would permit qualifying token offerings of up to $5 million or $75 million under different conditions.
- The group wants regulators to distinguish automated token repurchases from buybacks directed by centralized project operators.
- The SEC’s public consultation closes October 20, while the proposed regulations remain subject to review and revision.
According to the policy organization’s October 19 announcement, it filed a comment letter supporting the SEC’s proposed rules while requesting changes intended to address how decentralized cryptocurrency networks operate. The group argues that the current draft leaves important questions unresolved for developers and token holders, particularly while networks are still being built.
The submission comes one day before the SEC’s October 20 deadline for public comments on Regulation Crypto Assets. The agency proposed the framework in August 2026 to establish specific registration exemptions for certain investment contracts involving cryptocurrencies.
Under the draft, qualifying projects could raise up to $5 million over four years through a startup exemption or up to $75 million within a 12-month period through a separate fundraising exemption. Neither provision is currently an approved exemption under Regulation Crypto Assets, and the final rules may differ from the published proposal.
Hyperliquid Policy Center seeks clearer rules for token airdrops
One of the group’s central recommendations concerns how free token distributions should be treated under U.S. securities laws.
The Hyperliquid Policy Center wants the SEC to write its existing airdrop interpretation directly into the final regulation. The group argues that receiving tokens without providing payment or another form of consideration generally does not satisfy the investment-of-money requirement associated with an investment contract.
In March, the SEC and Commodity Futures Trading Commission issued a joint interpretation addressing the application of federal securities laws to several cryptocurrency activities. The joint crypto classification guidance covered airdrops, staking and other blockchain activities while examining the circumstances under which tokens may be connected to investment contracts.
The policy center’s proposed change would provide specific regulatory language for qualifying token distributions. It wants the rule to focus on whether recipients provided tangible and definable consideration in exchange for the assets.
The group identifies wallet connections, sanctions screening and other routine delivery procedures as activities that should not automatically turn a free distribution into a securities transaction. Such requirements may be necessary before a user can receive tokens, even when the recipient has not paid the issuing project.
Its recommendation distinguishes administrative steps from activities performed as compensation for tokens. A project requiring participants to provide services after announcing a distribution could raise different legal questions under the existing interpretation.
The organization argues that formalizing this distinction would give developers and recipients clearer expectations when distributing tokens to network participants.
SEC proposal leaves secondary crypto trading questions unresolved
Secondary market trading forms another significant part of the Hyperliquid Policy Center’s submission.
The organization wants the SEC to explain whether tokens originally distributed through the proposed registration exemptions can subsequently be traded through decentralized protocols and other intermediaries.
The August proposal addresses certain cryptocurrency offerings and contains provisions concerning resale and state registration requirements. However, it does not establish a complete regulatory regime for every person or protocol facilitating transactions after tokens reach investors.
Earlier, crypto.news examined the proposed exemptions, including the separate fundraising limits and proposed safe harbor. The SEC’s announcement emphasized capital raising and disclosures, leaving the legal treatment of certain secondary-market activities to other regulatory requirements.
The policy center argues that the usefulness of the offering exemptions depends partly on whether recipients have a functioning market in which to transfer or sell their tokens.
Its comment refers to the SEC’s own economic analysis, which discusses how limited secondary-market liquidity could reduce the expected benefits of the proposed framework. The organization wants the agency to address this issue when adopting the final regulation.
The recommendation specifically includes blockchain protocols and people who facilitate trading without being registered as traditional securities intermediaries. The group has not argued that every platform should receive unconditional relief from applicable securities laws.
Existing requirements for securities exchanges, brokers and dealers remain relevant when an activity falls within their statutory definitions. The proposed offering exemptions would not automatically exempt all trading services from those obligations.
Hyperliquid group challenges the proposed developer safe harbor
The SEC’s draft includes a conditional safe harbor intended to address when a cryptocurrency is no longer tied to an investment contract.
Under the proposed framework, an issuer generally must complete or permanently cease the essential managerial efforts it previously represented or promised to investors. Meeting the specified conditions could allow the related token to be treated as no longer subject to that investment contract for federal securities law purposes.
The Hyperliquid Policy Center argues that the certification requirement could create difficulties for projects that have maintained that their tokens were never sold through investment contracts.
Its submission says developers might view the required certification as an implicit admission that a securities relationship previously existed. The group wants projects to be able to certify that their tokens were never tied to an investment contract without making a contrary declaration.
A second objection concerns timing. The organization believes the safe harbor should provide protection while essential managerial work is still underway, because projects face regulatory uncertainty during development.
The current proposal is more limited, with the safe harbor linked to the completion or permanent cessation of the promised managerial activities. Extending protections to unfinished projects would require the SEC to change the conditions described in its August release.
In a previous analysis of the regulatory framework, the proposed safe harbor was identified as distinct from the two fundraising exemptions. The safe harbor concerns the legal relationship between a token and an investment contract, while the exemptions address qualifying offers and sales.
The group has not received approval for its proposed changes. The SEC must consider the public consultation and any subsequent revisions before determining the contents of a final regulation.
Automated token buybacks draw a separate SEC recommendation
Token repurchases are another area where the Hyperliquid Policy Center wants more precise legal language.
The group is asking the SEC to distinguish buybacks that occur automatically under published blockchain rules from purchases made at the discretion of a centralized company or project operator.
Some cryptocurrency protocols use predetermined mechanisms to allocate trading fees or other network revenue toward purchasing tokens. In other arrangements, a company or foundation decides when to buy tokens, how much to spend and whether to change the program.
The policy organization argues that those arrangements should not automatically receive identical treatment when regulators assess whether a central party is directing the economic activities associated with a cryptocurrency.
It wants the SEC to incorporate its staff’s token buyback guidance into the final regulation or the accompanying explanation. The submission requests consistent use of the term “central party” and cautions against treating validators and other independent participants as one controlling group solely because they share economic incentives.
The distinction is relevant to Hyperliquid’s ecosystem, where token buybacks and transaction-driven mechanisms have attracted attention from market participants. However, the group’s request does not establish that any particular Hyperliquid token or program has received a regulatory exemption.
The policy center’s interpretation remains an interested-party recommendation. Whether a particular buyback is associated with an investment contract depends on the facts of the arrangement and the applicable law.
Federal protections could expire under the SEC’s draft
The group’s fifth recommendation addresses how long federal protections against certain state securities registration requirements should remain available.
Regulation Crypto Assets proposes federal preemption for qualifying securities offerings and some subsequent transactions. The provision would limit specified state registration requirements while preserving other applicable legal obligations.
The Hyperliquid Policy Center argues that those protections should remain effective after a project satisfies the proposed safe harbor. It is concerned that losing federal preemption at that stage could expose developers or token holders to a new set of state-level registration questions.
The comparison with congressional legislation has identified differences between the SEC’s proposed regulatory exemptions and the treatment of decentralized networks under the CLARITY Act. The SEC proposal concerns particular securities law requirements, while legislation could establish a more extensive statutory framework.
Federal preemption under the draft would not eliminate every state law affecting cryptocurrency businesses. State antifraud provisions and requirements governing activities beyond the covered securities offerings may continue to apply.
In its August proposal, the SEC established file number S7-2026-27 and set October 20 as the deadline for written comments. The rulemaking remains open for public input, and the agency has not adopted the Hyperliquid Policy Center’s five requested changes.
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