The US Senate's postponement of a vote on the cryptocurrency regulatory bill, the Clarity Act, effectively renders the legislation unlikely to pass in the near term. Even if the bill were enacted, its scope would fail to cover the fastest-growing segments of the crypto market. Companies operating in these areas are actively lobbying regulators to secure favorable treatment.

Representatives from the policy and legal departments of several firms have revealed that the rapidly growing overseas crypto trading platform Hyperliquid and the popular decentralized lending protocol Morpho have recently intensified their engagement with US federal regulators. They are seeking policy solutions that would allow them to protect and expand their businesses within the existing US legal framework. The Clarity Act aims to clarify several core regulatory responsibilities for the crypto market and exchanges, defining the boundaries between SEC and CFTC oversight for crypto spot operations. However, even if the bill were passed (which is highly unlikely in the short term), it would not cover the products offered by platforms like Hyperliquid Labs and Morpho, including perpetual derivatives and the underlying infrastructure for decentralized lending.

While centralized exchanges like Coinbase have seen a significant drop in trading volume, these on-chain platforms continue to attract investor interest. Consequently, platform management is exploring alternative solutions, such as regulatory no-action letters, exemption clauses, new regulatory guidance, or targeted new rules. Hyperliquid, a project that combines a public blockchain and a trading exchange, was founded in 2023 by Harvard graduate Jeff Yan. It is one of the fastest-growing entities in the crypto industry, with reports indicating its profit exceeded $900 million last year. The platform's perpetual swaps are highly popular among traders, allowing them to use leverage to bet on the price of crypto assets and other instruments without the need for rolling over expiring contracts like traditional futures. However, Hyperliquid does not currently operate a CFTC-regulated US derivatives exchange, and its front-end interface prohibits direct trading by US users.

A viable regulatory path could involve persuading regulators to allow US-licensed institutions to offer perpetual swaps to their clients, with order matching, clearing, and settlement all occurring on Hyperliquid's public blockchain. Records from regulatory meetings indicate that Hyperliquid representatives have recently engaged with both the CFTC and the SEC. Jake Chervinsky, head of the Hyperliquid Policy Center, stated, "Our primary goal is to help regulators understand the value of on-chain financial infrastructure." The hope is that regulators will either interpret the current regulatory framework to allow US user access or, if necessary, issue new regulatory guidance and create specific rules. Last month, Hyperliquid's Policy Center, together with crypto wallet provider Phantom, submitted a joint comment letter to the CFTC. The letter proposes allowing licensed institutions to use on-chain markets for order matching and settlement, while also exempting developers and applications that do not hold user funds from registration obligations.

Chervinsky's ideal outcome is to secure a direct order from the CFTC, allowing institutions already registered with the agency to immediately begin trading perpetual swaps on the blockchain. He believes this is feasible, citing the CFTC's approval for Kalshi and Coinbase to launch perpetual futures within the US in May as an example. An informed source indicated that these discussions are ongoing, with the CFTC continuously exploring various innovative proposals with market institutions and exchanges. However, Chervinsky acknowledged that achieving regulatory approval is challenging. The on-chain market model of Hyperliquid raises many new issues for which traditional laws and regulations were not designed. A key difference is that in Hyperliquid's system, users control their assets through their own wallets, and the blockchain records all transactions, whereas current regulations assume that licensed entities like brokers and exchanges are the ones holding assets and maintaining records. Adding another layer of complexity, the underlying assets for Hyperliquid's perpetual swaps include not only cryptocurrencies, but also commodities like crude oil and silver, as well as the stock prices of individual companies like SpaceX. In the second quarter, contracts tied to real-world assets accounted for 32% of the platform's total perpetual swap trading volume. While commodity contracts fall under CFTC jurisdiction, stock-based derivatives could fall under the SEC's securities regulations. SEC meeting records show that in mid-July, Hyperliquid executives, along with their legal and policy teams, met with the SEC's Crypto Task Force to present the project's technology, protocol mechanisms, and user base.

Morpho operates in a regulatory gray area. Meanwhile, the Clarity Act does not provide clear guidelines for decentralized lending. Decentralized lending allows borrowers and lenders to match directly on the blockchain without intermediaries like banks, leaving much of the regulatory interpretation to be determined by agencies based on existing laws. Following the collapse of major centralized lending platforms like Celsius and Voyager in 2022, interest in crypto vault products that do not directly hold user assets has surged. Morpho is a leading decentralized lending protocol that does not directly hold crypto assets; its lending logic is executed automatically by on-chain smart contracts. Users can deposit crypto assets into vaults to lend them out and earn interest. The platform's deposit base has nearly doubled over the past year, currently exceeding $12.2 billion. Morpho's General Counsel, Chris Robins, and his team met with the SEC last month to discuss the regulatory approach to vault operations. He predicts that if the Clarity Act fails to pass, regulators may initiate a legislative process to clarify this "regulatory gray area." In July, SEC Commissioner Hester Peirce warned that some vault operations might trigger the application of securities laws, and the SEC has already begun assessing whether existing rules need to be revised. Robins stated, "If regulated businesses use this neutral infrastructure, the responsible party would be the relevant operator, such as the vault manager, who would need to obtain the necessary licenses and qualifications." Vault managers like Gauntlet and Steakhouse Financial are responsible for capital allocation, yield management, and risk management. Both Coinbase and Robinhood have partnered with Morpho to integrate the protocol into their apps, allowing users to lend crypto assets through Morpho to earn interest. Robins indicated that even if the Clarity Act fails, the existing partnerships with Coinbase and Robinhood will continue. He also noted, however, that the bill's passage could boost confidence among traditional financial institutions to participate in on-chain lending pools. "Some institutions may choose to participate through compliant channels, and theoretically, we could see on-chain vaults registered as funds in the future."