The SEC Has Concluded a Three-Year Investigation Into Hiro Systems, the Entity Behind Bitcoin’s Stacks Layer-2 Blockchain

This decision marks a pivotal moment for Hiro, which has treated its native token, STX, as a security under US law since its inception in 2018.

The United States Securities and Exchange Commission (SEC) has concluded a three-year investigation into Hiro Systems, the entity behind Bitcoin’s Stacks layer-2 blockchain, which raised $70 million through token sales between 2017 and 2019.

According to a regulatory filing on July 12, the SEC has decided not to pursue enforcement action against Hiro Systems PBC, formerly known as Blockstack PBC.

In a letter included in the filing, the SEC 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.”

This decision marks a pivotal moment for Hiro, which has treated its native token, STX, as a security under US law since its inception in 2018.

Since 2019, Hiro has consistently filed with the SEC under Regulation A+, a registration exemption for smaller securities issuances.

Additionally, it utilized exemptions under Regulations D and S for private and international offerings respectively.

In 2021, Hiro argued that the Stacks blockchain had achieved sufficient decentralization, asserting that it no longer qualified as a securities issuer.

In a filing, the company stated, “Management concluded further that if Hiro is no longer in the position of providing, and will no longer be able to provide, essential managerial services to the Stacks Blockchain, then it is no longer necessary for Hiro to treat the Stacks Tokens as investment contracts that are securities under the federal securities laws.”

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This decision by the SEC comes shortly after another crypto-related investigation was dropped earlier in the week.

On July 11, Paxos announced that the SEC had opted against enforcement action related to its investigation of the Binance USD stablecoin.

Despite these decisions, the SEC continues to pursue enforcement actions against other firms in the crypto space, such as Ripple, Binance, Kraken, and Coinbase.

Recent legal developments, including a significant Supreme Court ruling in June, have constrained the SEC’s regulatory approach.

The Supreme Court’s decision in Loper Bright v. Raimondo overturned the Chevron Doctrine, limiting the SEC’s flexibility in enforcing existing laws.

Moreover, recent court rulings against Ripple and Binance have further shaped the regulatory landscape for crypto issuers, challenging the SEC’s interpretations of securities laws.

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