Author: shaunda devens

Translation: Baihua Blockchain

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Hyperliquid is still implementing geographical blocking on the U.S. market to this day because its permissionless on-chain infrastructure conflicts with U.S. market structure laws—those laws strictly limit futures trading to registered trading platforms, clearinghouses, and brokers. The Hyperliquid Policy Center has urged the CFTC (Commodities Futures Trading Commission) and SEC (Securities and Exchange Commission) to modernize these regulatory frameworks, arguing that as long as regulatory agencies fulfill respective compliance obligations, they should be allowed to build products on HyperCore through builders and deployers. Today, under the confirmation of Trump’s declaration, achieving the localization of Hyperliquid through the licensed HIP-3 DEX has become a probable path.

1. Core Details

Over the past year, much of our work on Hyperliquid has been redefined from a "decentralized perpetual contract trading platform" to a "modernized market infrastructure": a globally accessible and composable financial tool platform encompassing perpetual contracts, spot trades, and prediction markets.

Unlike all-in-one proprietary crypto platforms like Coinbase and BN (which encompass user access, custody to trade execution), Hyperliquid's infrastructure layer is more akin to the functional separation found in traditional finance (TradFi): the trading platform (DCM) is responsible for listing contracts and matchmaking trades, the clearinghouse (DCO) is responsible for providing margin and ensuring settlement, and the broker (FCM) is responsible for user access and routing trade paths.

Similarly, Hyperliquid's modular technology stack exemplifies the same separation of duties. HyperCore (the trading platform and clearing layer) operates matchmaking, margin accounting, and settlement as core logical functions of the protocol, performs position market valuation according to verifiable oracles, and executes liquidation through a deterministic waterfall mechanism. Deployers need to stake 500,000 HYPE as a forfeitable margin, responsible for token listings, setting contract specifications, leverage limits, and oracle configurations, retaining a maximum of 50% of fees generated from their market. Builders act as brokers, guiding user access and routing trade flow to HyperCore to receive a portion of trading fee revenue.

However, Hyperliquid has recast these layers on-chain and enforces them through program code: access and market creation can be permissionless, assets are completely self-custodied by users, other applications can build on top of it, and all assets can achieve 24/7 trading on a single global platform, eliminating the geographical and legal fragmentation of traditional finance.

2. Hyperliquid's Regulatory Predicament

Against this backdrop, the biggest challenge facing Hyperliquid is regulation: U.S. market structure laws are tailored for traditional architecture, with each statutorily registered role presenting a structural conflict with Hyperliquid's underlying design. For example:

• Designated contract markets (DCM) must comply with 23 core principles under Section 5(d) of the Commodity Exchange Act (CEA), including market surveillance and customer identity verification. However, anyone can access HyperCore with just a wallet.

• Derivatives clearing organizations (DCO) must calculate margin using models approved by the board with a 99% confidence level and settle through an approved settlement bank (17 CFR §§39.13–39.14). HyperCore relies on protocol logic to calculate margin and completes settlement at the consensus level.

• Futures commission merchants (FCM) must segregate customer funds according to Section 4d of the CEA. Hyperliquid users are self-custodied, which greatly differs from custodial FCM models.

These stringent requirements have forced even centralized KYC-compliant trading platforms like Coinbase to register as FCMs and acquire existing DCM companies for their U.S. onshore operations. Hyperliquid cannot replicate this model because acquiring a DCM and catering to existing regulations would undermine its intention to "innovate underlying infrastructure"; thus, it opts to implement geographical blocking and exits the world's largest capital market.

Nonetheless, Hyperliquid's goal is not to remain permanently in the offshore market: in February 2026, it announced the establishment of the Hyperliquid Policy Center (HPC) and injected 1 million HYPE (approximately 72.5 million USD at current prices), committing to integrating this new market structure into the U.S. legal system.

In July, HPC, together with Phantom, petitioned the CFTC to confirm that releasing on-chain software itself does not trigger licensing registration requirements, allowing existing licensed institutions to operate matchmaking, settlement, and margin accounting on on-chain infrastructure and establishing exemptions that permit non-custodial wallets to route users to regulated derivatives. In August, HPC partnered with TradeXYZ to bring the same logic to the SEC, proposing a regulatory framework for Pre-IPO perpetual contracts (such as the soon-to-be-listed SpaceX and Cerebras already trading on Hyperliquid) and complemented it with the necessary information disclosure and eligibility rules for U.S. investors. Early signs indicate that this strategy is proving effective and that the U.S. regulatory attitude is open, the most conspicuous sign being Trump announcing that Chairman Selig plans to promote Hyperliquid’s localization.

The HPC strategy does not demand to open Hyperliquid directly to U.S. investors without KYC; instead, it advocates treating it as neutral infrastructure: if U.S. companies can fulfill their regulatory responsibilities while using it, then it should also be available alongside traditional DCMs as an option. For example, brokers that fulfill KYC obligations could route client trading flows to HyperCore; or deployers could assume the role of a registered trading platform, retaining discretion over token listings, market surveillance, and emergency powers.

3. Hyperliquid's Compliance Examples

With the ongoing lobbying of Washington policies, Hyperliquid Labs has launched updates on the testnet, theoretically providing a pathway for compliance access. The most typical example is the permission-managed HIP-3 deployers: unlike the fully open native markets and existing HIP-3 deployment on Hyperliquid, these new deployments are only accessible to whitelisted users. Such deployments provide a clear path for regulated entities to launch markets, execute KYC, and whitelist compliant users for trading.

These compliance examples will manifest as decentralized order books, as all markets (such as BTC and RWA markets) need to be re-listed. However, whitelisted market makers will build liquidity bridges between the two order books, eliminating liquidity fragmentation, allowing newly deployed markets with independent order books to still inherit Hyperliquid's deep liquidity. This independent order book model has precedents (such as early BN US and the current deployment of Lighter on the Robinhood Chain); however, the difference is that both markets on Hyperliquid operate on the same L1, sharing collateral and margin without the need for cross-chain or cross-platform transactions, thus enabling liquidity to flow seamlessly between order books rather than being isolated or locked up.

These trading platforms also include other parameters, such as the "PA" operation authority within the payload, allowing DEX to perform actions directly on user accounts: submitting reduce-only orders, canceling orders, and transferring USDC internally within the DEX, similar to the FCM’s authority to forcibly close out client accounts. These elements collectively outline the evolution path for the future: U.S. brokers and institutions now have the tools to build compliant Hyperliquid products on HyperCore. This choice is complementary; Hyperliquid's native markets still maintain permissionless access, and its positioning as neutral infrastructure remains unchanged.

4. Research Views

Hyperliquid's recent actions in Washington indicate that entering the U.S. domestic market in a compliant manner is the current core priority; however, it is equally clear that operating directly through its native non-KYC frontend is not compliant under current U.S. laws. We believe that HPC's efforts indicate a pathway for achieving KYC-compliant access: allowing the use of Hyperliquid's underlying infrastructure provided that access service providers fully comply with regulatory requirements. As enabling tools land on the testnet (with permissioned HIP-3 deployers and PA account controls), we expect this landing approach to provide U.S. investors with a compliant path to participate in the Hyperliquid market, while preserving the protocol itself as a neutral infrastructure.

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