Author: Liam 'Akiba' Wright, cryptoslate

Translated by: Baihua Blockchain

In an episode of Galaxy Brains released on June 18, Galaxy's Alex Thorn discussed this round of the cryptocurrency cycle, the shift of perpetual contracts towards compliant onshore markets, prediction markets, and Hyperliquid's no-KYC model with BN founder Zhao Changpeng.

In a segment released on June 16, Thorn clearly articulated this distinction: CZ praised Hyperliquid's product, stating that BN could not compete with a niche market based on "no KYC + decentralized narrative"; he also remarked that, based on his experience, he would not personally operate such a model.

This discussion was no longer simply about "CZ saying BN cannot compete in Hyperliquid's track." Subsequent discourse focused more on his assessment of the Hyperliquid model—he said this model was "awesome," but also added that he assumed this project would "have very strong lawyers." This statement directly brought the discussion back to the regulatory level: it implies that the competitive advantage of the platform is tightly bound with legal and compliance risks.

This distinction transformed a product-level praise into a market structure issue. Today, a derivatives platform faces a greater conflict: which parts of on-chain perpetual trading platforms can be replicated by regulated trading platforms, and which parts cannot be replicated.

Hyperliquid's moat is not just faster transaction speeds, a more native cryptocurrency experience, or trader loyalty. What makes it truly special is its ability to offer a market similar to perpetual futures, while also being markedly different in access models from centralized trading platforms that must adhere to compliance expectations of major global markets.

If on-chain perpetual trading continues to grow, it is because it feels more open, faster, and less intermediated, then the core of policy conflict will become: can this "openness" still hold up under scrutiny? Regulators will question whom the platform serves, what products it offers, and when a trading venue claims to be decentralized, who ultimately bears responsibility.

CZ's Highlighted Access Advantages

CZ's response carries significant weight because BN has always been one of the most representative trading platforms for the scale of global crypto derivatives, and he has clearly separated "appreciating the product" from "willingness to take operational risks." In other words, Hyperliquid could very well be an excellent product, but the track it is running on is one that BN is unwilling to enter.

This is precisely the core of the market structure dispute. Regulated platforms can certainly enhance matching engines, extend trading hours, list more crypto-related contracts, and design products closer to perpetual exposure.

But what is harder to replicate is the trading experience that does not require going through the same identity verification, legal jurisdiction screening, or centralized compliance gates—and these are precisely the requirements that come inherently with being a regulated trading platform.

Thus, the terms and onboarding documents of Hyperliquid itself also become part of its operational risks. The specific wording around access rights, qualified users, restricted areas, and user obligations is exactly where the trading model shifts from "product issue" to "policy subject."

A product can technically be decentralized on some levels, but it may still attract regulatory scrutiny due to issues such as "who operates the frontend," "who promotes the access points," and "how to prevent users from restricted markets from participating."

The clearest implication of CZ's words is that Hyperliquid is actually competing from a completely different risk position. BN can compete in areas of liquidity, token listing ability, branding, and infrastructure.

But for BN, participating in the competition by abandoning the compliance posture that currently defines its global operating model becomes much more challenging.

The real consequences are straightforward: if what traders value most is the access capability that is no KYC, then the leader in this track is likely to become the platform that is most easily questioned about "whether this model can continue to expand without becoming more like traditional trading platforms."

The impact of this access model extends beyond seasoned derivatives traders. Its trading advantage is actually built on a very straightforward user commitment: setting fewer barriers between the trader and a highly leveraged market.

This commitment can certainly bring liquidity, but it also gives regulators a clear entry point—to scrutinize who exactly is controlling this market and which users are being reached.

Why Legal Risks are Clearly Visible

Such legal risks are real, but they also have boundaries. CZ expresses personal opinions rather than regulatory rulings; the most explicit official signal is a warning from the UK, rather than enforcement actions from the US.

The UK's Financial Conduct Authority (FCA) has issued a warning page for Hyperliquid, first published on May 21 and updated on June 7. This warning states that the company may be providing or promoting financial services without permission and may be conducting business aimed at UK users.

As of the time of publication, this warning remains in effect and continues to define Hyperliquid as an "unauthorized entity that may be targeting UK users." This has become one of the most vivid examples in the public cases: regulators have started to perceive a large on-chain perpetual trading platform more like a financial services provider, rather than as neutral software infrastructure.

The UK's Warning on Hyperliquid Reveals the Regulatory Challenges Behind Its Impact on Wall Street

This warning has placed Hyperliquid's "Wall Street ambitions" under regulatory scrutiny; CZ's statements add another layer of concern. Regulators are likely to further question whether the no KYC posture that makes the platform difficult to replicate also makes it difficult to be "normalized" and fitted into the existing regulatory framework?

Past history in the US has also clarified this risk profile, even though Hyperliquid is not in the same case. In 2022, the US Commodity Futures Trading Commission (CFTC) sued bZeroX and Ooki DAO, accusing them of illegal off-exchange digital asset trading, failure to meet registration obligations, and violations of the Bank Secrecy Act related to leverage and margin trading geared toward retail investors.

The lesson provided by this case is limited yet clear: US derivative regulators have historically argued that even if a structure has decentralized or DAO characteristics, it can still fall under regulatory scope.

This precedent cannot be directly applied to Hyperliquid, but it illustrates why regulators focus their attention on "access." If a product offered by a platform functionally acts like derivatives and reaches users whom regulators believe should be screened and protected, then the focus of the debate could shift from "code and community" to "promotion, platform control, and accountability."

The claim of "decentralization" itself is a double-edged sword. The more convincingly a platform can demonstrate that it does not belong to traditional intermediary models, the more room it has to argue against being treated as a traditional intermediary.

Conversely, the more users access it through identifiable frontends, promotional channels, market incentives, and specific control mechanisms, the easier it becomes for regulators to question: who is truly responsible for this market.

For traders, "decentralization" will ultimately become a practical issue rather than a rhetorical one. The more a platform relies on visible interfaces, incentive mechanisms, and user processes, the easier it is for officials to focus on those aspects that appear still governed by human, policy, and market design decisions.

Onshore Products are Changing the Comparison Benchmark

The other half of the competition risk comes from the product design of regulated markets. This episode of Galaxy introduced CZ's relevant statements, placing Hyperliquid alongside "CME and Cboe promoting perpetual trading towards onshore markets."

The product gap between offshore, crypto-native trading platforms and regulated markets is not static.

Cboe announced in November 2025 that its futures trading platform would launch continuous futures products for Bitcoin and Ethereum.

The Bitcoin and Ethereum continuous futures on this trading platform will be traded as products under the US regulatory framework, aiming to provide an experience similar to "perpetual exposure" through long-duration contracts combined with daily funding adjustments.

Meanwhile, ongoing policy disputes over the regulation of crypto perpetual futures and how to classify relevant trading venues continue to heat up. Prediction markets, quasi-perpetual products, and continuous futures are continually squeezing the boundaries of old market categories.

If Regulators Can Unify Rules, US Traders Might Finally Achieve Domestic Perpetual Trading

However, this comparison ultimately depends on product design and legal identity. Regulated continuous futures do not differ from Hyperliquid-style on-chain perpetual products in terms of custody, margin arrangements, venue control, access mechanisms, and operators' legal identities.

However, the more regulated platforms bring continuous crypto exposure to the onshore market, the more the logic of competition will change. At that time, whether Hyperliquid can maintain its advantage will depend on whether its entire package—including access methods, on-chain settlements, and market culture—remains sufficiently different.

CZ's statements hit right on this critical point. If regulated trading platforms can bridge some product gaps while retaining KYC and venue regulation, Hyperliquid's advantages will increasingly concentrate on that part—precisely the part that regulated players are least willing to replicate.

This is certainly good for differentiation, until it becomes the point most intolerable to regulators.

The policy tug-of-war around prediction markets adds another layer of complexity. As quasi-perpetual exposures, event contracts, and continuous futures come closer to regulated venues, regulators and courts will have more opportunities to define which rules different products should belong to.

CME Lawsuit Challenges: Can Kalshi's Bitcoin Leverage Expansion Push It Towards a "Universal Trading Platform?"

This also makes the distinction between "product forms" and "access models" more critical. Hyperliquid can attract users with different trading experiences, but it is precisely this experience that makes every future regulatory articulation particularly significant.

A regulated platform can narrow the "product gap" without changing the "access gap." This is why CZ's comments can transcend the typical rhetoric between ordinary trading platforms.

If the onshore market continues to evolve, then the remaining advantages will increasingly center on the characteristics that bear the most regulatory pressure: who can trade, where to trade, and what scrutiny needs to be done.

Any Change in Access Rules Will Redefine This Moat

Hyperliquid's publicly stated wording has become even more critical today: including its terms of service, user onboarding, jurisdiction blocking rules, frontend control methods, and any changes in how the platform will describe "which users are eligible to use."

If the platform shifts to stronger identity verification or stricter geographical fencing, then the product itself may still exist, but this will test how much of its moat comes from access advantages rather than execution efficiency.

Regulatory wording will form a second key observation indicator. Another warning similar to the FCA's, a statement from a US regulator, enforcement actions against a specific derivatives platform, or court disputes surrounding quasi-perpetual products, will all be more significant than generic discussions about "whether this platform is sufficiently decentralized."

What truly matters is how regulators ultimately define the problem: is it the product itself, the users being reached, the operators, the frontend interface, or the lack of necessary scrutiny mechanisms?

The onshore market is the third observation indicator. If platforms like CME, Cboe, or Kalshi continue to add crypto exposures that are closer to perpetual trading experiences, then the competition Hyperliquid faces will turn into one side having stronger legal certainty and the other side offering a more lenient access experience.

Only when traders consistently perceive the value of "access premium" as higher than the "regulatory discount" will this become a powerful market position.

CZ's remarks point out this tension in an unusually straightforward manner. The reason Hyperliquid's moat is perceived as real may be precisely because BN cannot replicate it.

The unresolved risk is that when on-chain perpetual trading becomes significant enough for regulators and regulated trading platforms to ignore, whether this moat can withstand the ensuing legal pressures remains to be seen.

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