Hyperliquid Policy Center Pushes SEC to Revise Five Points in Crypto Framework

A Regulated Framework With Unresolved Edges

The Hyperliquid Policy Center filed a public comment on October 19 backing the Securities and Exchange Commission’s proposed Regulation Crypto Assets framework – but the group’s support comes with five specific demands for revision before it considers the rules workable. The submission targets areas where, in the group’s view, the current draft would create friction for token developers and secondary market participants without producing any clear regulatory benefit.

The comment does not carry the weight of a regulatory decision. It is one of what will likely be many industry submissions feeding into a rulemaking process whose direction rests entirely with the SEC and however it weighs the objections it receives.

What the Five Objections Cover

The group’s concerns cluster around two broad categories: how tokens move through their early distribution phase, and what the rules look like once a project has matured. On the distribution side, the Hyperliquid Policy Center takes issue with how the SEC’s proposal treats administrative steps inside token airdrops. Airdrops – distributions of tokens to wallet addresses, often used to grow a network or reward early users – involve a series of technical operations that the current draft may categorize in ways that trigger securities requirements, even when no capital is being raised.

A second distribution-related concern involves what happens after an exempt offering closes. Under the current draft language, the group argues it remains unclear under what conditions a token can begin trading freely once the initial exempt distribution is complete. The transition from restricted distribution to open market trading is exactly the kind of boundary that has caused the most confusion for developers working under securities law frameworks that were written long before blockchain assets existed.

The remaining three objections address the later life of a token. The group wants a more explicit safe harbour – a defined legal zone of protection – that applies clearly once a project has reached functional maturity. It also calls for rules that address token buybacks specifically, since standard securities-law treatment of issuer repurchases does not map cleanly onto how token buyback mechanisms actually function on-chain. The fifth concern is a request for consistency between federal exemptions and state-level securities requirements, which currently can diverge in ways that force developers to navigate two overlapping regulatory systems simultaneously.

The Underlying Problem the Comments Reflect

The policy center’s submission is an attempt to work around a structural mismatch that has defined crypto regulation in the United States for years. A network token typically starts inside a capital-raising structure – where securities law clearly applies – but eventually circulates in a system where thousands of people trade and use it without any direct relationship to the original issuer. Whether that later-stage token is still a security depends on tests developed decades before distributed ledgers existed, and those tests do not produce clean answers for most digital assets.

The SEC’s proposal is an attempt to resolve that ambiguity with a dedicated framework. But the consultation process that followed its release shows the industry still cannot agree on where the lines should fall – or whether the lines the SEC has drawn so far are in the right places.

Why Token Airdrops Are a Pressure Point

Airdrops have attracted regulatory attention before, partly because the line between a gift distribution and a promotional securities offering is not self-evident. A project that drops tokens into thousands of wallets may argue it is simply growing its network; a regulator applying the Howey test – the longstanding legal standard for what constitutes an investment contract – might see recipients expecting profit from the issuer’s ongoing work.

The Hyperliquid Policy Center’s specific concern is more granular than that debate. The group points to the administrative mechanics inside an airdrop: the steps required to validate wallet eligibility, process claims, or batch-distribute tokens. If those steps are read as securities transactions under the proposed framework, developers face compliance requirements at a level of operational detail that most legal infrastructure is not built to handle.

The buyback question operates on similar logic. When a company repurchases its own stock, there are detailed SEC rules governing timing, volume, and disclosure. Token buybacks – where a protocol uses treasury funds or automated mechanisms to remove tokens from circulation – do not fit neatly into that structure. The Hyperliquid Policy Center wants the SEC to write rules that address those mechanics directly rather than forcing projects to apply stock-market rules to on-chain operations that work differently at a technical level. This tension between analog-era regulation and digital infrastructure is the same friction that tokenized securities projects face when trying to bring traditional assets onto blockchain rails.

The federal-state preemption issue is the most procedurally complex of the five. Federal exemptions under securities law do not automatically override state-level registration requirements. For a token project operating nationally, that means qualifying for a federal exemption does not necessarily eliminate the need to comply with securities rules in individual states – a duplicative burden the policy center argues the SEC has the authority to address within the proposed framework.

Where the Process Goes From Here

The Hyperliquid Policy Center’s submission is part of the SEC’s standard notice-and-comment process, through which the agency collects public responses before finalizing a rule. The commission is not obligated to adopt any specific suggestion, but it is required to respond to substantive objections in its final rulemaking documentation. How much weight the five specific revisions carry will depend on how many other commenters raise the same concerns and how the SEC’s staff assesses the legal and market arguments behind them.

What is clear from the comment record so far is that the industry is not simply asking for lighter regulation. The submissions focus on technical precision – the exact scope of what triggers a securities requirement, the exact conditions under which a token can trade freely, the exact boundaries of a safe harbour. Those are questions with real consequences for how token projects are structured, how exchanges list new assets, and how developers decide whether to build in the United States at all.

The SEC has not indicated a timeline for moving from the consultation phase to a final rule. In the meantime, developers and legal teams are working under the existing framework – one that still does not clearly answer whether a mature, widely-traded network token is a security, a commodity, or something else entirely.

The five changes the Hyperliquid Policy Center wants are not radical departures from the SEC’s proposal. They are edits. Whether the commission reads them that way or treats the airdrop and safe-harbour objections as challenges to the framework’s core assumptions is the question that will define whether this consultation actually changes anything.