SEC Drops Investigation into Bitcoin Layer-2 Stacks Developer Hiro Systems

Highlights:

• The SEC ended its three-year investigation into Hiro Systems and the Stacks Blockchain with no enforcement action.
• Hiro raised $70 million through token sales between 2017 and 2019, initially treating tokens as securities.
• The SEC’s decision comes amid a challenging regulatory environment for crypto firms in the U.S.

The U.S. Securities and Exchange Commission (SEC) has concluded its investigation into Hiro Systems, formerly known as Blockstack, without recommending any enforcement action. This decision marks a significant victory for the cryptocurrency industry as it navigates regulatory scrutiny.

According to the filing posted on Friday, the SEC’s three-year investigation into Hiro Systems has officially ended. Hiro, a developer for the Bitcoin Layer-2 network Stacks, has been under investigation since raising $70 million through token sales from 2017 to 2019. Despite the lengthy probe, the SEC informed Hiro earlier this week that it would not pursue any enforcement actions based on the information gathered during the investigation.

SEC Ends Three-Year Probe into Hiro Systems

In a letter attached to the filing, the SEC’s Division of Enforcement stated, “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, formerly known as Blockstack PBC.” This letter, while indicating no further action, included a standard disclaimer that the notice should not be construed as exoneration.

Hiro Systems, which played a crucial role in developing the Stacks blockchain, has provided developers with essential tools. These tools enable them to build applications on the Stacks Layer-2 blockchain. The Stacks network, created by Muneeb Ali, a crypto industry veteran and CEO of Trust Machines, has been a significant innovation in scaling Bitcoin’s capabilities.

The Stacks protocol launched its initial version with the STX token in 2018. Early on, the company treated these tokens as securities, conducting token sales under the SEC’s Regulation A+, which allows limited public securities sales without full registration. Other tokens were sold to accredited and international investors under exemptions. By January 2021, a new version of Stacks with a proof of transfer consensus mechanism was launched. Consequently, Hiro claimed this made the network fully decentralized. In addition, Hiro stopped treating Stacks tokens as securities.

Another Win for the Crypto Industry

The conclusion of the SEC’s investigation into Hiro Systems follows another significant decision by the regulator. The SEC concluded its investigation into Paxos, the issuer of Binance USD (BUSD), without recommending enforcement action. Consequently, this brings relief to the stablecoin issuer and its partners. Paxos received a formal termination notice from the SEC, signaling the end of its regulatory troubles concerning BUSD.

“Paxos prevails in SEC investigation of BUSD stablecoin” 👏

On Tuesday, we received a formal termination notice from the SEC stating that it will not recommend enforcement action against Paxos Trust Company in the investigation of Binance USD (BUSD).

View the letter and our… pic.twitter.com/8kjysfsPg3

— Paxos (@Paxos) July 11, 2024

This series of regulatory decisions is seen as a positive development for the crypto industry, which has been advocating for clearer regulations and fair treatment. Hiro expressed its relief and optimism by saying, “Given the current state of the regulatory environment in the US, this is the best outcome any company in our space can hope for.”

Muneeb Ali, in a tweet following the announcement, highlighted that the SEC’s probe looked into the Stacks protocol as a whole, not just Hiro. This broader investigation and its favorable conclusion underscore the robustness of the Stacks network and Hiro Systems’ compliance efforts.

𝗡𝗘𝗪𝗦: SEC drops a three-year investigation into Stacks with no action.

Earlier this week, we received word from the SEC that after 3 years, they are terminating their investigation into the @Stacks blockchain (the protocol) and Hiro System (a company) with no action.

Stacks…

— muneeb.btc (@muneeb) July 12, 2024

The Stacks (STX) token responded positively to the news, with its price rising from $1.50 to above $1.70. This price movement indicates market confidence in the project’s future, free from the overhang of regulatory uncertainty.