SEC Drops Investigation into Hiro Systems and Stacks Blockchain, Marking Win for Crypto Industry
The U.S. Securities and Exchange Commission (SEC) has concluded its three-year investigation into Hiro Systems, formerly known as Blockstack, without recommending any enforcement action. This development, revealed in a regulatory filing on July 12, 2024, marks a significant victory for the cryptocurrency industry in its ongoing regulatory challenges.
Hiro Systems, a blockchain software developer that raised $70 million through token sales between 2017 and 2019, received a letter from the SEC’s Division of Enforcement stating, “Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Hiro Systems PBC.” The investigation, which began in 2021, focused on both the company and its Stacks blockchain protocol.
Stacks, a layer-2 blockchain designed to supplement Bitcoin, was created by crypto industry veteran Muneeb Ali, who now serves as CEO of Trust Machines and a board member at Hiro. Ali tweeted that the SEC’s probe encompassed not just the Hiro entity but the entire Stacks protocol.
The conclusion of this investigation follows closely on the heels of another dropped SEC inquiry into stablecoin issuer Paxos, indicating a potential shift in the regulator’s approach to the crypto industry. These developments come amid recent court rulings that have limited the SEC’s ability to take hardline stances against alleged violations by crypto issuers.
Hiro’s journey with regulators began in 2018 when it launched the first version of the Stacks chain with its STX token. Initially, the company treated its tokens as securities, conducting sales under various SEC regulations, including Regulation A+, which allows for limited public securities sales without full registration.
In January 2021, Hiro argued that the Stacks network had become sufficiently decentralized, potentially negating the need to treat STX tokens as securities. This claim apparently prompted the SEC’s investigation, which has now concluded without action.
The resolution of this case reaffirms Hiro’s commitment to regulatory compliance while pursuing its mission to support Bitcoin-focused developers. The company expressed hope for clearer regulatory frameworks in the U.S. to foster innovation in decentralized technologies.
