Cumberland’s warning to Hyperliquid perp traders: ‘The world will track your positions’

Crypto market maker Cumberland is cautious about ICE-backed plans to bring Hyperliquid perpetual Futures (perps) trading to the U.S. 

According to Don Wilson, co-founder and CEO of Cumberland, Hyperliquid’s underlying tech has some features that may conflict with CFTC market rules. He posed 4 issues and wondered whether they align with CFTC core principles.  

First, Wilson does not see the benefit of on-chain trading of perps if the same can be offered via a centralized exchange such as Coinbase.

Perps allow users to get leveraged exposure to assets with no expiries and no need to hold underlying spot assets. Coinbase, Kalshi, and other platforms are already regulated to offer them. 

Secondly, CFTC-regulated entities are partially hidden, and traders don’t know the identities of those they’re trading against. However, Hyperliquid’s order book is fully transparent, and wallets and trades can be tracked. 

In fact, Wilson posed a similar question to billionaire Stanley Druckenmiller, one of the backers of the deal. 

Are you aware that if you trade on Hyperliquid, the world will be able to track your positions and trades in real time? Do you see that as a benefit?

But perhaps the most crucial questions were about possible front-running of trades using Hyperliquid priority fees and whether the US order book will be merged with a more liquid global order book. 

Wilson concluded that the on-chain trading plan could present trading inefficiencies and regulatory hiccups. 

Mixed reactions to Cumberland’s stance on the Hyperliquid plan

For her part, Rebecca Rettig, legal chief at Jito Labs, said there could be privacy solutions to address the transparency issue. However, she agreed that the merging of onshore and offshore order books was the most crucial issue. 

But it’s unlikely to happen. A case in point is Binance U.S., which has thinner liquidity because it does not share an order book with the global Binance platform. In fact, Ark Invest was skeptical that any similar Hyperliquid US plan would be ineffective. 

Besides the Intercontinental Exchange (ICE) and Trade [XYZ] route, there is another Kraken pathway that Hyperliquid is exploring for the U.S. market.

It remains to be seen how the CFTC will address the flagged issues and which pathway will be most viable for Hyperliquid. 

That said, Hyperliquid has diversified its chain revenue from typical trading fees to USDT reserve yield and deployer perps (HIP-3 being explored by Kraken and ICE). Since July, Hyperliquid has doubled its monthly revenue from about $60M in July to nearly $120M in September. 

If approved, Kraken and ICE HIP-3 markets could drive the revenue higher and boost HYPE’s value. HYPE jumped +20% on the ICE update on Thursday, the 29th of October. But it erased its gains over the weekend and traded at $87 at press time. 

Final Summary

• Cumberland questioned the viability of Hyperliquid’s on-chain perps in the US, citing likely trading inefficiencies.
• ICE and Kraken’s HIP-3 plans could boost Hyperliquid’s revenue, which has doubled to nearly $120M.