Bitcoin
SEC Drops Investigation Into Bitcoin L2 Stacks, Builder Hiro, Lawsuit Says
The U.S. Securities and Exchange Commission has dropped a three-year investigation into Hiro Systems, a blockchain software developer (formerly known as Blockstack) that raised US$ 70 million in token sales from 2017 to 2019, according to a Friday filing.
The conclusion of the investigation is another victory for the cryptocurrency industry in its years-long fight with the regulator and follows news, reported by Fortune earlier this week, that the agency had finished an investigation for the stablecoin issuer Paxos.
“Based on the information we have to 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 statement. Letter for Hiro attached to Friday’s lawsuit.
The letter contained a standard caveat that such notification “should in no way be construed as an indication that the party has been exonerated or that no action may result from the staff’s investigation.”
Hiro makes tools for developers to build applications on Stacks, a layer-2 blockchain that supplements Bitcoin. Stacks is the brainchild of the crypto industry veteran Muneeb Aliwho is now CEO of Trust Machines, another builder in the ecosystem, and a board member at Hiro.
In a tweet Friday after the lawsuit was made public, Ali wrote that the SEC’s investigation looked at the Stacks protocol, not just the Hiro entity.
The company, then known as Blockstack, released the first version from the Stacks chain, with its namesake token (STX)in 2018. Initially, the company treated the tokens it sold as securities.
Conducted a portion of its token sales in accordance with SEC Regulation A+which allows issuers to sell limited quantities of securities to the public without registration. Other tokens were sold under exemptions for securities sold only to accredited persons (Reg D) or international investors (Reg S).
In January 2021, a new version Stacks released, with a new consensus mechanism (transfer voucher). In Hiro’s mind, the network had become fully decentralized.
In a SEC archiving That month, the company said it was no longer providing “essential management services for the Stacks Blockchain” and therefore no longer needed to treat Stacks tokens as securities.
Apparently, the SEC was skeptical of this interpretation. In September 2021, Hiro revealed that he was answering a question of the execution division.
Friday’s proceedings mark the end of the inquiry and, presumably, the removal of the sword of Damocles hanging over the company.
UPDATE (July 12, 2024, 2:10 PM UTC): Adds tweet from Muneeb Ali; adjusts headline to say the investigation looked at the Stacks protocol, not just the Hiro entity.