On Monday, the Hyperliquid Policy Center (HPC) filed a comment letter supporting the U.S. Securities and Exchange Commission’s (SEC) proposed Regulation Crypto Assets, urging the regulator to adopt the rule with five refinements.
According to HPC, the proposal could give developers long-sought clarity on when US securities laws apply to tokens, but it also argued that gaps around the safe harbor, secondary trading, and state preemption could leave projects with little reason to build in the US.
SEC’s promise to enact crypto regulation based on existing law
The SEC proposed Regulation Crypto Assets in August, building on a March interpretation of how securities laws apply to token distributions. This also included airdrops, a marketing strategy that was widely used during DeFi summer in 2020 when prominent crypto companies would gift free tokens to users to incentivize liquidity, platform activity, and decentralize project governance.
Regulation Crypto Assets would create two exemptions for token offerings:
· A startup exemption of up to $5 million over four years
· A fundraising exemption of up to $75 million in any 12-month period.
Additionally, a new safe harbor would provide a clear legal off-ramp, officially confirming when a token has become independent enough to no longer be classified as an investment contract subject to strict SEC rules.
Joseph Hall, a partner at Davis Polk & Wardwell, wrote in a September op-ed for Bloomberg Law that the SEC’s proposal still leaves uncertainty because it builds on the Howey test, a legal standard used to determine whether a transaction qualifies as an investment contract.
HPC pointed to the same test as the root of the problem.
Hyperliquid asks SEC to take five steps
According to Hyperliquid, the current draft of the SEC’s Regulation Crypto Assets will not deliver the certainty the SEC intended. It has thus asked the SEC to consider five key changes:
· Write the SEC’s March airdrop analysis into the final rule text.
· Address resales and intermediary status directly.
· Allow projects to certify that their token was never tied to an investment contract.
· Fold the SEC staff’s buyback guidance into the final rule or adopting release.
· Make federal preemption of state registration requirements durable.
Speaking with DeFi Rate, Amir Forouzani, co-founder and CEO of Puffer Labs, noted that the stronger point in Hyperliquid’s letter is that the company focuses on “what comes next.”
“Institutions need clear rules for trading and confidence that those rules remain workable as networks evolve,” Forouzani said. “Builders need certainty while developing those networks, too.
“The SEC has an opportunity to connect these pieces and give onchain markets a predictable path from launch to adoption, with clear accountability and investor protections throughout.”
Why is Hyperliquid concerned about airdrop regulation?
Hyperliquid has asked the SEC to treat an airdrop as not involving an “investment of money” when the network is already functional, eligibility depends on the recipient’s own contributions, and the distribution is not a capital raise, regardless of when it is announced. It said such airdrops may be recurring or programmatic.
The argument is that a user who earns tokens by using a network, running a validator, supplying liquidity, or voting in governance has not funded the project or put money at risk. HPC also wants steps such as connecting a wallet, signing a claim transaction, or completing sanctions screening confirmed as not counting as payment, and for the same analysis to apply to past airdrops.
“If projects are becoming more selective about airdrops, I see that as a reassessment of what incentives can realistically achieve,” Forouzani said.
He noted that an airdrop’s success can be measured months after distribution through protocol activity, contributions, and governance participation.
