CME Group CEO Terry Duffy argued that the combination of missing identity checks, high leverage and automatic liquidations on Hyperliquid could lead to cascading liquidations.
According to Wu Blockchain, Duffy discussed Hyperliquid’s trading model and the requirements for entering the U.S. market on Bloomberg’s Odd Lots podcast on October 20. The CME executive’s criticism is based on the view that the platform cannot shift regulatory responsibility to users or developers building applications on its infrastructure simply by claiming to provide only the technical infrastructure.
He Highlights the Risks of High Leverage and Automatic Liquidations
According to Duffy, the absence of know-your-customer (KYC) checks, combined with high leverage and automatic position-closing mechanisms, creates risks that could disrupt the orderly functioning of the market. Among the potential outcomes he cited were cascading liquidations, in which the forced closure of one position puts pressure on other positions.
Duffy emphasized that trading platforms are responsible for overseeing trading and ensuring that participation takes place under fair and orderly conditions. This broadened the discussion beyond identity verification to include platforms’ responsibility for the functioning of the market.
Emphasizes Compliance as a Condition for Entering the U.S.
The CME CEO said Hyperliquid must comply with U.S. laws if it wants to operate in the country. He also said, as his own assessment, that the operating model proposed by founder Jeff Yan raises several compliance issues.
At the heart of Duffy’s comments is the question of who is responsible in a decentralized trading infrastructure: In his view, a platform that provides the infrastructure cannot fully pass on its obligations concerning how trading is conducted to other participants.
Not investment advice.