Onchain finance has arrived: regulated firms have begun to deliver regulated products over public blockchains. To date, financial regulation has assumed that a regulated firm delivers its products on infrastructure it owns and controls, but that assumption is now giving way. Public blockchains provide a new type of infrastructure layer that is open to all institutions on identical terms, runs around the clock, and records every transaction publicly. Onchain finance couples the accountability that regulators expect with the benefits of openness, resilience, and transparency that public networks offer, enabling deeper markets, continuous settlement, and a record that all market participants can check for themselves. Stablecoins are the first example of onchain finance operating at scale, and securities and derivatives are poised to follow suit.

As markets and regulated products move onchain, market participants will need clear rules for how those products can be offered and accessed. The European Union was an early mover in standing up regulation for digital assets. In 2023, it adopted the Markets in Crypto-Assets Regulation, known as “MiCA,” becoming the first major jurisdiction to put a dedicated framework for crypto-asset markets into law. Among other things, MiCA governs the firms that provide custody, exchange, and trading services for crypto-assets, along with the issuers of e-money tokens and asset-referenced tokens.

MiCA sits alongside MiFID II, the EU’s framework for securities and derivatives markets, which classifies financial instruments by their economic terms and is accompanied by interpretive guidance from the European Securities and Markets Authority, or ESMA. This guidance confirms that the technology on which an instrument is recorded does not change its classification. The boundary between MiFID II and MiCA decides which rulebook governs a product and which supervisor oversees it, and the EU now has the chance to build on both for the era of onchain finance.

In May, the European Commission opened a targeted consultation on how MiCA should develop and whether it remains fit for purpose. The Commission’s questions reach beyond MiCA’s current perimeter, from novel products like perpetual futures to how much access EU investors should have to global sources of liquidity. The consultation arrives at a defining moment. Public blockchains such as Hyperliquid now serve as infrastructure for markets that trade continuously and in substantial volume, and regulated firms are looking for ways to build on them. The Commission’s review will provide a timely opportunity to extend the EU’s frameworks to house these innovative products.

Yesterday, HPC submitted its response to the consultation, our first filing outside the United States. Our response urges the Commission to build on the strength of the EU’s existing framework rather than rebuild it, and to calibrate proportionately where onchain market structure differs from the markets those rules describe. Three main themes run through our response: 

• Classification should follow the economic features of an instrument rather than the technology underlying the ledger on which it is recorded. 

• Regulation of onchain products and markets should be calibrated to the functions that market participants actually perform and to the risks each product presents. 

• Public blockchains address many supervisory objectives natively and can help regulated intermediaries meet their obligations more effectively. 

Among other topics, the Commission asks whether perpetual futures on crypto-assets should be governed by MiCA or by MiFID II. The answer will determine which rulebook applies, which supervisor oversees the market, and which investors can access it. In our view, perpetuals belong under MiFID II. 

Perpetual futures are among the most widely traded derivative products in the world, and for good reason. A perpetual future gives a trader or a hedger exposure to an asset’s price through a single contract that never expires, so liquidity concentrates in one market rather than scattering across dated tenors, and a position can be held for as long as the exposure runs without the rolls, timing risk, and costs that a dated contract carries. 

Perpetual futures are standardized, cash-settled contracts that share the economic features of other MiFID II instruments, and ESMA guidelines already treat perpetual futures as MiFID II instruments. Applying that classification to perpetual futures executed and settled on a public blockchain network is consistent with MiFID II’s substance-over-form approach and promotes technological neutrality in the regulation of financial instruments. We recommend that the Commission confirm this treatment through its existing guidelines, which requires no new legislation. 

How MiFID II is applied to perpetual futures matters as much as whether it applies at all. In 2018, ESMA restricted how contracts for difference (CFDs) could be sold to retail investors. CFDs provide similar economic exposure as perpetual futures, but their structure and risks differ in important respects. As a result, applying the same regulatory approach to perpetuals would impose restrictions that are inappropriate and excessive.

Perpetual futures carry different risks from CFDs, and the calibration developed for CFDs is not the right starting point for them. CFDs are a bilateral product: the firm offering a CFD typically sets its price, takes the other side of its client’s trade, and profits when the client loses. A perpetual future trades on a central order book against other participants at market prices, its funding methodology is published in advance, and in onchain markets, every trade, funding payment, and liquidation is recorded on a public ledger. Our response asks the Commission to let those structural differences guide the regulatory treatment of perpetual futures and how market participants may access them.

Public blockchains also offer native transparency benefits that can advance supervisory objectives. MiFID II, for example, mandated pre- and post-trade disclosures, order recordkeeping, and transaction reporting because conventional order book systems are opaque by default. On an onchain order book, however, every order, trade, funding payment, and liquidation is recorded on a public ledger that any user, researcher, or supervisor can verify. This means supervisory authorities can inspect the state of a market directly instead of waiting for records produced after the fact. Independent research published in June used markets available on Hyperliquid to test whether disclosing large orders from inception lowers execution costs, evidence that has been scarce because that disclosure is rare in traditional markets. Our response asks the Commission to recognize onchain verifiability as a means of meeting the EU’s transparency and recordkeeping objectives, so that firms are not asked to file parallel reports of information already public.

Among other steps, our response asks the Commission to:

1. Confirm through the existing ESMA guidelines that perpetual futures are governed by MiFID II however they are recorded and whatever they reference, so that the analysis is not confined to contracts represented by a token or to contracts referencing crypto-assets, and that classification is assessed instrument by instrument, never by the venue or the ledger.

2. Calibrate the requirements for perpetual futures to the product, with full publication of funding, margin, and close-out mechanics, reference prices drawn from more than one source, and access phased in by client category.

3. Recognize onchain verifiability as a means of meeting transparency and recordkeeping objectives so that firms are not asked to file parallel reports of information already public.

4. Promote EU investors’ access to global liquidity to give them more efficient execution and access to global price formation and strengthen the competitiveness of EU venues and participants.

5. Confirm that a regulated firm’s use of a public blockchain to deliver a regulated product is assessed under the rules for that product and that firm, and does not by itself change the product’s classification or the network’s status.

The Commission can take these steps without new legislation. Clarification through the existing ESMA guidelines is faster and proportionate to the question, and the derivative categories in MiFID II, drafted by reference to economic characteristics, already accommodate perpetual futures. The direction of travel is visible elsewhere: the U.S. Commodity Futures Trading Commission permitted the first perpetual futures to list on a U.S. exchange in May, and Hong Kong’s Securities and Futures Commission published a framework for them in February. Both address the same mechanics our response describes.

Europe wrote the first comprehensive framework for crypto-asset markets, and the review is the Commission’s opportunity to build on it. Taken together, the measures outlined in our submission would give EU investors access to regulated markets that are deeper, continuously margined, and verifiable by anyone, and give the firms that serve them a clear path to deliver those products over public networks under existing EU rules. 

HPC has offered the Commission operational data, comparative analysis of other jurisdictions, and worked examples for any supplement to the ESMA guidelines, and we will continue engaging with the Commission, ESMA, and national authorities as the review proceeds.

Read our full response here.