Cryptocurrency asset manager Bitwise and decentralized derivatives platform Hyperliquid have submitted a joint rulemaking petition to the U.S. Securities and Exchange Commission (SEC), urging the regulator to establish transparent exemptions and modernization standards for token airdrops and secondary exchange trading.
The petition directly challenges the Commission's longstanding reliance on the 1946 Howey test to classify free token distributions as investment contracts. Under current enforcement policies, U.S. projects routinely geo-block domestic users from community token distributions over fears of unregistered securities liabilities, a practice the petitioners argue damages American competitiveness and disenfranchises decentralized protocol participants.
Proposed Exemptions for Decentralized Distributions
The joint petition outlines a tailored regulatory framework designed to distinguish active capital formation from functional token utility. Specifically, the firms argue that distributions carried out without direct financial consideration lack the requisite elements of an investment contract under federal securities laws, since recipients make no initial monetary investment into a common enterprise with an expectation of profits derived solely from the efforts of others.
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The formal petition broadens its scope beyond initial distributions to address the secondary trading lifecycle of digital assets. Bitwise and Hyperliquid have asked the SEC to establish an explicit safe harbor for secondary market transactions on both centralized venues and automated decentralized exchange protocols, citing market disruption caused by inconsistent regulatory actions.
By invoking the SEC's rulemaking authority under Section 19(a) of the Securities Act of 1933 and Section 23(a) of the Securities Exchange Act of 1934, the petitioners seek a statutory answer rather than continued case-by-case litigation. The petition emphasizes that decentralized tokens circulating post-network launch operate as functional network utility and governance instruments rather than securities representing an ongoing managerial obligation.
“By formally demanding tailored safe harbors for secondary trading and gratuitous token distributions, Bitwise and Hyperliquid are directly testing the Commission’s administrative mandate to establish workable guidelines rather than relying on punitive enforcement,” stated Marcus Vance, Senior Regulatory Strategist at the Digital Financial Integrity Institute.
The SEC is required under the Administrative Procedure Act (APA) to consider and respond to formal rulemaking petitions, placing renewed scrutiny on the regulator’s approach to decentralized network participation and U.S. crypto market access.
