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SEC Drops Investigation into L2 Bitcoin Stacks and Hiro Builder, Filing Says
The U.S. Securities and Exchange Commission has closed a three-year investigation into Hiro Systems, a blockchain software developer (formerly known as Blockstack) that had raised concerns 70 million dollars in token sales from 2017 to 2019, according to a filing on Friday.
The investigation’s conclusion is another victory for the cryptocurrency industry in its multi-year fight with the regulator and follows news, reported by Fortune earlier this week, that the agency had concluded an investigation in stablecoin issuer Paxos.
“Based on the information available to us as of this date, we do not intend to recommend enforcement action by the Commission against Hiro Systems PBC, formerly known as Blockstack PBC,” the SEC’s enforcement division said in a letter to Hiro attached to the documentation filed on Friday.
The letter contained a standard clause that such notice “should in no way be construed as an indication that the party has been exonerated or that no action may ultimately result from the staff investigation.”
Hiro creates developer tools to build apps on Stacks, a layer 2 blockchain that integrates Bitcoin. Stacks is the brainchild of a cryptocurrency industry veteran Muneeb Aliwho is now CEO of Trust Machines, another builder in the ecosystem, and a board member of Hiro.
In a tweet published Friday after the document was released, Ali wrote that the SEC’s investigation was aimed at the Stacks protocol, not just the Hiro entity.
The company, then known as Blockstack, launched the first version of the Stacks chain, with its eponymous token (STX)in 2018. Initially, the company treated the tokens it sold as securities.
It conducted a portion of its token sales pursuant to SEC Regulation A+which allows issuers to sell limited quantities of securities to the public without registering. Other tokens have been sold under exemptions for securities sold only to accredited persons (Reg. D.) or international investors (Reg S).
In January 2021, a new version of Stacks launched, with a new consensus mechanism (Transfer test). According to Hiro, the network had become completely decentralized.
In a SEC archiving that month, the company said it would no longer provide “essential management services to the Stacks Blockchain” and that it was therefore no longer necessary to treat Stacks tokens as securities.
Apparently, the SEC was skeptical of this interpretation. In September 2021, Hiro revealed that it was respond to a request from the division of execution.
Friday’s filing marks the end of the investigation and, presumably, the removal of the sword of Damocles hanging over the firm.
UPDATE (July 12, 2024, 14:10 UTC): Adds tweet from Muneeb Ali; edits title to say investigation looked at Stacks protocol, not just Hiro entity.