The U.S. Securities and Exchange Commission (SEC) has concluded its three-year investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack, which raised $70 million through token sales between 2017 and 2019. This decision marks a significant victory for the crypto industry, which has long grappled with regulatory scrutiny.
The SEC’s decision not to pursue enforcement action against Hiro was communicated in a letter from the commission’s division of enforcement, attached to a Friday filing. 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.” However, it included a standard disclaimer that this notice should not be interpreted as an exoneration or a guarantee that future action will not be taken.
Hiro develops tools for building applications on Stacks, a layer-2 blockchain designed to enhance Bitcoin. Stacks was co-created by Muneeb Ali, a veteran in the crypto industry who now serves as CEO of Trust Machines and is a board member at Hiro. In a tweet following the filing, Ali clarified that the SEC’s probe focused on the Stacks protocol rather than just the Hiro entity.
Originally, as Blockstack, the company launched the first version of the Stacks chain in 2018, issuing its native token (STX) and initially treating these tokens as securities. Part of the token sales was conducted under the SEC’s Regulation A+, which allows for limited securities sales to the public without full registration, while other tokens were sold to accredited or international investors under different exemptions.
In January 2021, a new version of the Stacks network was launched with a new consensus mechanism called proof of transfer. At that time, Hiro asserted that the network had become fully decentralized, stating in an SEC filing that it no longer provided “essential managerial services to the Stacks Blockchain,” thus deeming it unnecessary to classify Stacks tokens as securities.
Despite Hiro’s claims, the SEC remained skeptical and launched an inquiry in September 2021. The recent filing marks the end of this inquiry, lifting a significant burden from the firm and the broader crypto community.
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