The news of the U.S. Securities and Exchange Commission (SEC) dropping its investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack, is a significant development. This decision marks another win for the crypto industry in its long-standing struggle with the regulatory body.
The SEC’s Decision
According to a Friday filing, the SEC’s division of enforcement has decided not to recommend an enforcement action against Hiro Systems PBC, formerly known as Blockstack PBC. The letter 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.”
Hiro’s Background
Hiro, a blockchain software developer, is known for its tools that enable developers to build applications on Stacks, a layer-2 blockchain that supplements Bitcoin. The company, previously called Blockstack, launched the first version of the Stacks chain and its associated token (STX) in 2018. Initially, Blockstack treated the tokens it sold as securities, conducting a portion of its token sales under the SEC’s Regulation A+ and other exemptions.
The Decentralization Transition
In January 2021, a new version of Stacks was launched with a new consensus mechanism and proof of transfer. Hiro believed that the network had become fully decentralized and, in an SEC filing, stated that it was no longer providing “essential managerial services to the Stacks Blockchain.” Consequently, Hiro argued that it was no longer necessary to treat Stacks tokens as securities.
The SEC’s Inquiry
However, the SEC was apparently skeptical of Hiro’s interpretation. In September 2021, the company disclosed that it was responding to an inquiry from the division of enforcement. Friday’s filing marks the end of that inquiry and, presumably, the removal of a “sword of Damocles” that had been hanging over the firm.
“The letter contained a boilerplate caveat that such a notice ‘must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.'”
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
Significance for the Crypto Industry
The SEC’s decision to drop its investigation into Hiro is another victory for the crypto industry in its ongoing negotiations with the regulator. This development follows the recent news that the agency had ended an investigation into stablecoin issuer Paxos, further underscoring the industry’s progress in navigating the regulatory landscape.
As the cryptocurrency market continues to evolve, the resolution of these investigations highlights the importance of fostering open communication and collaboration between the crypto community and regulatory bodies. This outcome may pave the way for increased clarity and a more supportive environment for the development of innovative blockchain-based technologies.