Policy Advocacy’s Expanding Role in U.S. DeFi Market Formation

The launch of the Hyperliquid Policy Center, led by veteran counsel Jake Chervinsky, marks a significant new entry into U.S. digital asset policy engagement, especially for decentralized derivatives markets. The move coincides with stalled federal negotiations over market‑structure legislation, heightened regulatory attention on prediction markets, and rising institutional interest in tokenized financial infrastructure. This article evaluates how a dedicated DeFi-focused policy vehicle may influence market design, oversight practices, and institutional pathways for participation.

Context and Background

Hyperliquid’s creation of a Washington-based policy organization comes at a period of legislative bottlenecks. Negotiations around the U.S. market‑structure bill remain halted, with banking trade groups opposing provisions related to stablecoin rewards and blocking progress. White House‑hosted negotiations between banking and crypto industry representatives continue, with another meeting scheduled imminently, but no consensus has emerged.

Parallel developments demonstrate accelerating institutional relevance of decentralized infrastructure. Coinbase is already providing crypto infrastructure support to five of the world’s largest banks, while regulated U.S. stablecoins with embedded rewards are influencing legislative dynamics. The Digital Asset Market Clarity Act stalled after Coinbase withdrew its support the night before a Senate Banking Committee hearing, highlighting the fragility of coalition‑driven policymaking.

Against this backdrop, Hyperliquid aims to articulate policy positions related to decentralized perpetual futures markets and blockchain‑based financial infrastructure. The organization’s timing aligns with broader regulatory scrutiny: prediction markets have drawn attention following evidence that Polymarket data influenced S&P futures pricing during the 2024 U.S. presidential election, and the CFTC continues to defend federal jurisdiction over prediction markets.

Market Impact Assessment

A policy advocate focused on decentralized derivatives may shape liquidity formation and institutional adoption trajectories. Perpetual futures remain among the highest‑volume DeFi instruments, yet their regulatory classification and permissible distribution channels in the U.S. are unsettled. Clearer rules would influence exchange design, collateral parameters, and the extent to which regulated financial institutions can route flows to or from decentralized venues.

Hyperliquid’s entry is particularly relevant as institutional actors expand experimentation with blockchain infrastructure. The NYSE has developed tokenization technology and is working with regulators to align tokenized assets with existing frameworks, while preparing a blockchain-powered platform enabling 24/7 trading of tokenized stocks and ETFs later in 2026—an operational departure from its traditional 6.5‑hour trading window. Real‑world asset tokenization is also under pressure: Starwood Capital, managing over $125 billion, cannot proceed with tokenization due to U.S. regulatory constraints despite Deloitte’s forecast that tokenized real estate could reach $4 trillion by 2035.

Regulatory and Compliance View

The formation of a policy center dedicated to decentralized derivatives intersects with several existing regulatory issues:

• Governance and controls: U.S. oversight remains uncertain for decentralized perpetual markets whose risk engines, liquidation logic, and oracle mechanisms may be viewed as offering synthetic exposure to regulated futures products. Hyperliquid’s effort suggests a need for frameworks that distinguish between decentralized protocol governance and operator‑level responsibilities.
• Reporting and data transparency: The influence of Polymarket on S&P futures pricing underscores regulators’ interest in market integrity and cross‑market surveillance. Any advocacy around decentralized derivatives must address how on‑chain data can support supervisory analytics without compromising protocol neutrality.
• AML/KYC architecture: While decentralized venues typically resist full identity‑linked participation, institutions require KYC‑compliant access paths. Policy discussions may explore whether permissioned interfaces can coexist with open base‑layer infrastructure.
• Market‑structure alignment: The CFTC, under Chair Michael Selig (who took office in late 2025), continues asserting federal authority over prediction markets by opposing state‑level attempts to shut them down. This strengthens the likelihood that decentralized derivatives fall squarely within derivatives‑market regulatory perimeter discussions.

Product Design and Structuring Implications

Should U.S. policy evolve toward clarity, several structural consequences for decentralized derivatives could emerge:

• Collateral specification: Institutions may push for higher-quality, lower-volatility collateral in DeFi derivatives markets, especially as regulated stablecoins with rewards gain traction. Banking trade group resistance to stablecoin rewards provisions suggests this area will remain contested.
• Access channels: Broker‑dealers and futures commission merchants may require standardized interfaces for routing orders to decentralized perpetual markets, potentially necessitating hybrid execution architectures.
• Distribution constraints: Without clear rules, decentralized perpetuals remain unsuitable for regulated investment products. A recognized policy framework could enable structured-note wrappers, managed‑account overlays, or collateralized OTC products referencing on‑chain liquidity.
• Interaction with tokenized markets: As NYSE and other institutions prepare tokenized asset venues, derivatives referencing tokenized equities or real‑world assets may become viable, subject to regulatory coordination. But current barriers—such as those preventing Starwood from tokenizing its assets—limit near‑term interoperability.

Risk Considerations

• Market and liquidity risk: Perpetual derivatives rely on funding‑rate mechanisms and concentrated liquidity pools. Regulatory clarity could improve depth by enabling institutional participation, but also impose stricter risk‑management expectations.
• Counterparty and credit risk: While protocols mitigate bilateral exposure, institutional users will still evaluate smart contract performance risk and oracle reliability. The influence of prediction markets on traditional futures pricing highlights the relevance of cross‑market feedback loops.
• Operational and cyber risk: As tokenized asset platforms shift to 24/7 trading environments, continuity risks and operational resilience requirements will rise. DeFi venues already operate continuously, but expectations for incident reporting and systems testing will intensify.
• Legal and regulatory risk: The stalled Digital Asset Market Clarity Act and ongoing White House mediation illustrate the uncertainty around near‑term legislative outcomes. Any DeFi‑specific advocacy must account for fragmented consensus across banking, crypto, and regulatory constituencies.

Implementation and Infrastructure Notes

Policy clarity affects implementation choices for both centralized and decentralized market participants. Integrating institutional users into decentralized perpetual markets may require:

• Permissioned access modules for KYC‑verified institutions.
• Standardized audit trails compatible with regulatory reporting requirements.
• Oracle frameworks with verifiable data provenance to support supervisory analytics.
• Interoperability layers linking decentralized derivatives with tokenized securities venues.
• Governance structures that allow regulatory‑aligned protocol upgrades without compromising decentralization goals.

Real‑world asset tokenization infrastructure, including Propy’s $100 million plan to acquire U.S. title firms and integrate blockchain into property workflows, illustrates operational challenges. But these developments remain mostly adjacent to Hyperliquid’s focus and are referenced only to contextualize infrastructure trends.

Forward View

The creation of the Hyperliquid Policy Center signals that decentralized derivatives stakeholders expect formal policy formation in the near term, even as federal legislation remains stalled. Whether the Center materially influences outcomes will depend on its ability to bridge concerns from banking trade groups, federal regulators, and market participants who rely on emerging stablecoin architectures and tokenized market infrastructure.

For institutional DeFi, the most immediate impact will likely involve shaping narratives around market integrity, supervisory data utility, and the operational compatibility of decentralized perpetuals with regulated capital‑market infrastructures. With competing regulatory pressures—from CFTC oversight of prediction markets to federal deliberations over stablecoin rewards—the environment remains fragmented but increasingly receptive to structured policy engagement.