Hyperliquid's Jeff Yan: Regulate the Deployer, Not the Chain
Hyperliquid founder Jeff Yan has put a specific regulatory theory on the table: US oversight of crypto trading should attach to the companies that build and operate products on a blockchain, not to the base-layer network itself. The argument has immediate practical consequences for how accounting firms, auditors, and CFOs think about counterparty classification, regulatory capital treatment, and the accounting boundaries of DeFi activity on shared infrastructure.
What Yan Actually Said
Speaking to Bloomberg, Yan argued that regulatory controls belong at the layer where human decisions are actually made. "The regulation sits at the layer where there are controls, and indeed the deployers are the ones that exercise these controls," he said. The analogy he drew is to the internet: regulators govern the financial firms that operate over internet infrastructure, not the TCP/IP stack itself.
His proposal is not abstract. Hyperliquid's own perpetual futures platform remains closed to US customers. At the same time, Kraken's parent company, Payward, is structuring a way to offer US investors derivatives that use Hyperliquid's underlying technology through a regulated exchange. That arrangement illustrates the model Yan is advocating: a CFTC-regulated operator sits on top of the Hyperliquid blockchain, accepting the compliance burden, while the base layer itself stays outside the US regulatory perimeter.
The Internet Infrastructure Parallel
The internet analogy is doing significant work in Yan's argument. Under existing securities and commodities law, the question of whether a network itself constitutes an exchange or a trading facility has been contested territory. Yan's framing would resolve that by treating the blockchain as neutral infrastructure, functionally equivalent to a data centre or a fibre line, and placing the registration, reporting, and capital requirements on whoever deploys a trading product over it.
Whether regulators accept that framing is a separate question. The CFTC has historically focused on the economic function of a facility rather than its technical architecture. A blockchain that hosts perpetual futures markets operates functions that look, to a futures regulator, a great deal like a designated contract market. Yan's argument is that the relevant entity is the operator of those markets, not the ledger they settle on.
Why the Deployer-vs-Chain Distinction Matters for Compliance Teams
For accounting firms advising clients with DeFi exposure, and for CFOs who hold positions or have treasury operations touching decentralised platforms, this regulatory debate has direct operational relevance. The outcome determines which entity in a transaction chain carries the regulated-entity label, and that label drives a cascade of accounting and reporting consequences.
Counterparty Classification Under Current Standards
Under US GAAP and IFRS, the accounting treatment of a digital asset position often depends on whether the counterparty or platform is a regulated entity. A firm trading perpetual futures through a CFTC-regulated operator on top of Hyperliquid would, under Yan's model, have a regulated counterparty. A firm accessing the same underlying liquidity through an unregistered interface would not. That distinction affects how the exposure is classified on the balance sheet, how it is disclosed in notes to financial statements, and whether it triggers specific internal control requirements for regulated counterparties.
Auditors also need to understand the structure. When signing off on digital asset accounting, audit teams must document the nature of the platform through which assets are held or traded. If the regulated layer is the deployer and not the chain, audit procedures need to be directed at the deployer's controls, its segregation of assets, and its regulatory standing, not at the blockchain protocol itself.
Substance Over Form in DeFi Accounting
The deployer-first model also raises a substance-over-form question that is familiar from structured finance. If a Wall Street firm builds a regulated trading business on Hyperliquid, the economic substance of the transaction is a derivatives trade with a regulated entity. But the settlement happens on an unregulated public blockchain. For digital asset accounting software and crypto compliance reporting workflows, this creates a need to track not just the on-chain transaction but the off-chain legal entity that operates the interface, because the regulated entity is where the accounting boundary sits.
Firms using crypto bookkeeping software should be asking vendors now whether their transaction tagging and entity mapping features can handle this layered structure, where one blockchain hosts multiple operators with different regulatory statuses.
The CFTC Angle and Existing Legislative Context
Yan's comments land in a regulatory environment that is already debating exactly this kind of jurisdictional question. The CFTC has been signalling that it wants a clearer framework for digital commodities, and Congress has been working through competing proposals on how to divide responsibility between the SEC and CFTC for crypto markets. Understanding the CFTC crypto framework and its 2028 deadline risk is essential context for any firm trying to plan its compliance posture around DeFi.
Yan's model would sit more naturally within a CFTC-led framework than an SEC one, because it treats the blockchain as a commodity infrastructure layer and the deployer as the registered entity. If the CFTC were to adopt something close to this view, it would create a registration pathway for firms like Payward to offer Hyperliquid-based derivatives to US customers without requiring Hyperliquid itself to register.
What "Regulated Operator on an Unregulated Chain" Means Practically
The Payward arrangement gives a concrete preview. Payward plans to offer US investors derivatives that use Hyperliquid's technology, routed through a regulated exchange. From a US regulatory standpoint, Payward is the regulated entity. From a blockchain standpoint, settlement happens on Hyperliquid's network, which has no US registration. This is not entirely unprecedented: firms regularly use unregulated technology vendors to run parts of their infrastructure while the firm itself holds the relevant licences. What is new is applying that model to the settlement layer of a derivatives market.
For CFOs, this means that when evaluating a DeFi-adjacent product, the first question is no longer "is the blockchain regulated?" but "who is the regulated deployer, and what does their regulatory standing cover?" That is a more familiar due diligence question, but it requires understanding the technical architecture well enough to identify where the deployer layer ends and the base layer begins.
Accounting Implications Across the Entity Stack
The deployer-first model creates at least three distinct accounting scenarios that firms may need to handle simultaneously, depending on which interface their traders or treasury functions use to access a given blockchain's liquidity.
Scenario One: Trading Through a Regulated Deployer
If a firm trades through a CFTC-regulated operator that uses Hyperliquid as its settlement layer, the accounting treatment follows the regulated entity. Margin posted to the operator is a financial asset with a regulated counterparty. Gains and losses are recognised in the normal way for a derivatives position. The blockchain is infrastructure, invisible to the income statement.
Scenario Two: Direct Protocol Access
If a firm accesses Hyperliquid's protocol directly, the regulatory status of the counterparty is unclear under current law. This creates disclosure risk: auditors may require the firm to disclose the unregulated nature of the platform, and risk committees may apply higher haircuts to the positions. Digital asset accounting software needs to flag these positions differently from those routed through a regulated deployer.
Scenario Three: Mixed Exposure
A firm that has both a regulated-deployer position and a direct-protocol position on the same underlying blockchain needs to track them separately. The on-chain records may look identical, but the off-chain regulatory status is different. This is a reconciliation challenge for any crypto bookkeeping software workflow that relies solely on wallet addresses and transaction hashes without capturing the legal-entity layer above the chain.
The structural complexity here is comparable to what accounting teams already manage with tokenized instruments, as illustrated by how the DRW and Marex tokenized index swap was structured, where settlement on a blockchain sat inside a conventional OTC derivatives framework.
What Firms Should Do Now
The regulatory outcome of Yan's proposal is uncertain. Congress has not adopted it, the CFTC has not endorsed it, and the SEC has not commented. But the direction of travel in US crypto market structure is clearly toward deployer accountability, whether or not Yan's specific framing prevails. Firms that build their compliance and accounting infrastructure around that principle now will be better positioned regardless of which legislative vehicle eventually passes.
Practical Steps for Accounting and Compliance Teams
First, map every DeFi-touching activity to the legal entity operating the interface the firm uses. Do not stop at the blockchain address. Identify the deployer, check its regulatory status, and document that in the trade record. Second, review how current digital asset accounting software captures the entity layer above the on-chain transaction. If it does not, that is a gap in the audit trail. Third, brief the risk committee on the distinction between regulated-deployer exposure and direct-protocol exposure, because these carry different credit risk and disclosure profiles. Fourth, watch the CFTC's rulemaking calendar. Any guidance that formalises the deployer-as-regulated-entity model will require immediate updates to compliance policies and accounting classifications.
Frequently Asked Questions
Does Yan's proposal mean Hyperliquid would become regulated in the US?
Not under the model he described. His argument is that the blockchain itself would remain outside the US regulatory perimeter, while firms that build and operate trading products on top of it would register with the relevant regulator, currently most likely the CFTC for derivatives. Hyperliquid as a network would be treated as infrastructure, not as a regulated trading facility.
How does this affect how we account for positions taken on Hyperliquid?
It depends on which interface your firm uses. If you trade through a regulated operator that uses Hyperliquid as its settlement layer, accounting follows a conventional derivatives or digital asset framework with a regulated counterparty. If you access the protocol directly, the absence of a regulated counterparty requires separate disclosure and may affect how auditors classify the exposure. Tracking the legal-entity layer above the blockchain is essential.
What should our crypto bookkeeping software be able to do to handle this model?
At minimum, it should allow tagging of each transaction with the operating entity through which it was executed, not just the on-chain wallet address. It should also support different classification rules for regulated-deployer positions versus direct-protocol positions, and produce reports that separate those two populations for audit and risk-committee purposes.
Is the deployer-first regulatory model unique to Hyperliquid?
No. The underlying principle, that regulated obligations attach to the entity exercising control rather than to the infrastructure layer, is already present in how financial regulators treat technology vendors and cloud providers used by regulated firms. What is new is applying it explicitly to a public blockchain that hosts live derivatives markets, and proposing it as a formal regulatory framework rather than an ad hoc arrangement.
What happens to our compliance obligations if Congress adopts this model before we've updated our processes?
If the deployer becomes the regulated entity, your due diligence and record-keeping obligations run to the deployer, not to the blockchain. That means KYC/AML checks, margin account documentation, and trade reporting need to reference the deployer's registration and rulebook. Firms that have been treating on-chain settlement as the primary compliance record will need to layer in off-chain deployer documentation, which is a process and systems change, not just a policy update.
Source: CoinDesk Policy