In a big win for the crypto industry, the U.S. Securities and Exchange Commission has finished its three-year investigation into Hiro Systems, known before as Blockstack, without pushing for any penalties. This is great news for a sector that’s often under the watchful eye of regulators.
On Friday, Muneeb Ali, co-creator of the Stacks protocol, disclosed the end of the SEC investigation through a social media announcement. He shared his satisfaction with the outcome, noting that after providing comprehensive information and clarifying the mechanics of the Stacks network and Hiro’s role as a developer tooling company, the SEC decided to close the investigation.
https://x.com/hirosystems/status/1811832141279551497
Ali expressed his relief regarding the SEC’s decision to end the investigation, appreciating the considerable time and effort invested in the process. He believes this outcome is the best the industry could hope for, though he emphasized the need for improvements in the U.S. regulatory system.
With the investigation now closed, he is optimistic about the future of decentralized technologies for Bitcoin and the next-generation internet. Ali is also committed to working with policymakers and developers to actualize this vision.
This announcement follows a similar decision by the SEC to drop an investigation into Paxos, which had been under scrutiny for its issuance of the Binance USD stablecoin. After a year-long inquiry, a court ruled that the stablecoin was not a security under the SEC’s Howey test, marking another setback for the regulator.
No exoneration or guarantee of future action
In a letter dated July 9, the SEC notified the Stacks protocol that it had wrapped up the investigation and did not plan to pursue any enforcement action against Hiro Systems.
However, the SEC also noted that this notice should not be interpreted as clearing Hiro Systems of all potential future actions.
Background of the investigation
Hiro Systems, in a blog post summarizing the past year’s events, stated that the SEC’s Enforcement Division initiated an investigation into Hiro and the Stacks blockchain in January 2021. The firm complied with information requests and clarified the Stacks network’s role and Hiro’s involvement.
The blog post highlighted the importance of enabling developers, emphasizing the need for a clear regulatory path in the U.S. They hope to continue finding opportunities to help shape policies that accommodate the needs of builders of innovative open protocols. The closure of the investigation into Hiro and Stacks gives them optimism for the future of Bitcoin and the next-generation internet.
The end of the investigation into Hiro, which raised $70 million through token sales from 2017 to 2019, represents another triumph for the crypto industry in its ongoing struggle with the regulator.
Stacks’ regulatory journey
The company, then known as Blockstack, launched the first version of the Stacks chain, along with its STX token, in 2018. Initially, the company treated the tokens as securities, conducting a portion of its sales under the SEC’s Regulation A+, which permits issuers to sell limited amounts of securities to the public without full registration. Other tokens were sold under exemptions for accredited or international investors.
In January 2021, a new version of Stacks was launched with a new consensus mechanism called proof of transfer. Hiro believed the network had become fully decentralized. In an SEC filing that month, Hiro stated it was no longer providing “essential managerial services to the Stacks Blockchain,” and consequently, it was unnecessary to treat Stacks tokens as securities. However, the SEC was skeptical of this interpretation, leading to the now-concluded investigation.
Following the news of this regulatory victory, Stacks’ native token STX rose over 5% within 24 hours, reaching $1.68. This positive market reaction reflects the community’s optimism about the future of the Stacks network and decentralized technologies.