Woofun AI reports that FalconX Bravo has formally urged the SEC to classify cash-settled perpetuals tied to single securities or narrow indices as security-based swaps, a category that explicitly encompasses comparable contracts offered through DeFi protocols. This regulatory push targets instruments falling outside the joint SEC-CFTC security-futures framework, aiming to clarify jurisdictional boundaries for digital asset derivatives.

The proposal, submitted on Aug. 12 to both the Securities and Exchange Commission and the Commodity Futures Trading Commission, distinguishes between contracts under the joint regime and those requiring separate oversight. FalconX Bravo, listed on the CFTC's registered swap dealer roster and focused on digital assets, notes that products authorized by both agencies retain listing and market safeguards covering clearing, margin, position limits, surveillance, and trading halts.

However, bilateral and over-the-counter transactions, contracts on eligible venues, non-US platforms, and DeFi protocols are cited as examples requiring this new classification. Per Woofun AI, the filing details how such classification would impose specific structural requirements on these decentralized and traditional non-joint entities.

Under the proposed framework, affected dealers would face registration, business-conduct, transaction-reporting, capital, margin, and segregation requirements, while platforms might enter the security-based swap execution framework depending on execution mandates. Crucially, dealer status depends on the specific participant and transaction, meaning classification would not automatically force every protocol developer or trader to register. FalconX also seeks an amendment to Rule 18a-10, raising the combined-notional threshold for alternative compliance from 10% to 49%, while maintaining the fixed-dollar cap, SEC registration, and oversight for requirements not covered by the relief.

An independent comment filed Aug. 21 by researcher Amadeus Brandes recommended retaining the existing mixed-swap process to address critical risks. Brandes emphasized the need for protections against insider information, manipulation, leverage, and funding-rate risks inherent in these instruments. This divergence highlights the ongoing tension between streamlined regulatory frameworks and comprehensive investor protection in emerging digital asset markets.