Hyperliquid Policy Center and Pyth Core Contributor Urge SEC to Scrap Rule 611 for Onchain Markets

The Hyperliquid Policy Center, in collaboration with Douro Labs, a core contributor to the Pyth Network, has submitted a joint comment letter to the U.S. Securities and Exchange Commission (SEC) advocating for the repeal of Rule 611. The groups are also urging the SEC to establish clear guidance tailored to onchain markets, arguing that the existing rule is ill-suited for the decentralized trading landscape.

Why Rule 611 Is Under Fire

Rule 611, part of Regulation NMS, was designed for traditional financial markets where exchanges aggregate quotes to determine the best available price. This framework, the groups argue, does not translate to onchain markets, where price discovery operates differently. In automated market makers (AMMs), prices are determined by liquidity pools at the exact moment of execution, rather than through a centralized quote system. Similarly, onchain order books function outside the conventional centralized quote architecture that Rule 611 was built to regulate.

The comment letter stresses that applying Rule 611 to onchain markets would be impractical and could stifle innovation. Instead, the groups propose that the SEC develop principles-based best execution guidance specifically designed for onchain trading environments. Such guidance would provide clarity without imposing outdated infrastructure requirements on decentralized systems.

Investor Protection Remains a Priority

Despite the push for regulatory flexibility, the letter emphasizes that tokenized U.S. stocks should remain subject to existing investor protection rules. The groups argue that the settlement model—whether onchain or traditional—should not exempt these assets from the safeguards that apply to their conventional counterparts. This distinction is crucial for maintaining market integrity while fostering innovation.

The SEC’s current stance on crypto and digital assets has been evolving, and this comment letter adds to the growing dialogue between industry participants and regulators. The outcome of this rulemaking could have significant implications for how onchain markets operate in the U.S., potentially setting a precedent for future regulatory approaches to decentralized finance.

What This Means for the Industry

For traders and platforms operating in the onchain space, the SEC’s decision on Rule 611 will be closely watched. A repeal could remove a significant compliance burden, allowing for more efficient execution and innovation. However, the call for new guidance also signals a need for regulatory clarity that many in the industry have been requesting for years.

The letter also highlights a broader trend: the push for regulatory frameworks that acknowledge the unique characteristics of blockchain-based markets. As more traditional financial instruments become tokenized, the need for coherent, adaptable rules becomes increasingly urgent.

Conclusion

The joint comment letter from Hyperliquid Policy Center and Douro Labs represents a focused effort to align U.S. securities regulation with the realities of onchain trading. By advocating for the repeal of Rule 611 and the adoption of principles-based guidance, the groups aim to create a more suitable regulatory environment for decentralized markets, while still upholding investor protections. The SEC’s response will be pivotal in shaping the future of onchain finance in the United States.

FAQs

Q1: What is SEC Rule 611?
Rule 611 is a provision under Regulation NMS that requires trading centers to establish, maintain, and enforce policies to prevent trade-throughs, ensuring investors receive the best available price. It was designed for traditional centralized exchanges.

Q2: Why is Rule 611 considered unsuitable for onchain markets?
Onchain markets use automated market makers and order books that operate outside centralized quote systems. Prices are determined by liquidity pools at execution time, making the aggregation model of Rule 611 impractical and potentially harmful to efficiency.

Q3: What are the groups proposing instead?
They propose that the SEC repeal Rule 611 and develop principles-based best execution guidance tailored to onchain markets, while ensuring tokenized U.S. stocks remain subject to existing investor protection rules.