Jeff Yan, the co-founder of Hyperliquid Labs, has called on United States regulators to establish a legal framework that distinguishes between decentralized blockchain infrastructure and the financial applications built upon them. According to a report from Bloomberg on October 18, 2026, the proposal suggests that regulatory oversight should focus on the application layer—the financial institutions managing markets—rather than the underlying blockchain network itself. This strategic approach aims to integrate decentralized technology into mainstream finance while ensuring the core protocol remains protected from traditional compliance burdens.
A Specialized Regulatory Division
The proposed regulatory model seeks to place the responsibility for Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols on the entities interacting with the market. Jeff Yan argues that such a division would allow Hyperliquid to serve as a foundational layer for Wall Street without the protocol itself being treated as a traditional exchange. Under this structure, the blockchain acts as a neutral settlement layer, while the financial institutions operating on top of it handle the regulatory obligations typical of traditional markets.
- Focus on the application layer for financial compliance.
- Protection of the underlying blockchain from direct regulatory liability.
- Facilitation of institutional entry into decentralized finance (DeFi).
Infrastructure vs. Financial Service
Yan has compared the intended positioning of Hyperliquid to that of Amazon Web Services (AWS), which provides essential computing infrastructure without being held responsible for the specific business activities of its clients. Rather than attempting to replace established financial market participants, the project intends to provide the underlying trading technology used by these institutions. Currently, Hyperliquid remains unavailable to users in the United States as the team awaits further clarity on the legal landscape governing digital assets and decentralized exchanges.
Hyperliquid hopes to become the underlying trading technology used by traditional financial institutions rather than replacing existing financial market participants.
The proposal reflects a growing trend in the cryptocurrency industry to seek regulatory clarity that acknowledges the technical nuances of blockchain. By advocating for rules that target the "gatekeepers" or the application layer, Hyperliquid aims to create a path for institutional adoption that maintains the efficiency and transparency of decentralized ledgers while satisfying the safety requirements of the U.S. financial system. This development marks a significant step in the ongoing dialogue between DeFi innovators and federal regulators regarding the future of capital markets.
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