The US SEC Drops Its Investigation into Bitcoin Layer 2 Stacks and Builder Hiro

Many are celebrating these developments as the stringent financial regulator is appearing to let crypto projects breathe and not obstruct innovation

The United States Securities and Exchange Commission (SEC) has concluded its investigation into Bitcoin layer 2 Stacks and builder Hiro, according to a March 14 letter seen by Blockworks.

This news follows the SEC dropping its probe into Paxos for securities violations related to the issuance of the Binance USD (BUSD) stablecoin earlier this week. Both developments are being met with optimism within the crypto community, as the typically heavy-handed financial regulator appears to be giving crypto projects more leeway and not stifling innovation with securities violation claims.

“We have concluded the investigation as to Stacks Blockchain,” the SEC wrote in the letter to legal counsel representing the defendants. “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.”

The SEC included its standard, “This letter 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” in its letter.

Hiro, formerly known as Blockstack, launched the early version of the Stacks layer 2 in 2018, along with the STX token. The firm continued to operate software that helped developers launch dApps on Stacks and offered the STX token as a security under SEC guidance because it operated the Stacks chain, making the project centralized.

But it pivoted away from operating Stacks as the layer 2 took on its decentralized form in 2021, adopting a Proof of Transfer consensus mechanism during its mainnet launch. As such, it claimed that STX sales after that point were not securities offerings, prompting the SEC investigation into Hiro and the Stacks blockchain.

“Stacks did the first-ever SEC-qualified offering in 2019,” Muneeb Ali, co-founder of Stacks and board member for Hiro, wrote in a post on X, detailing how Hiro and Stacks cooperated with the SEC for over three years, providing “all requested information and worked to explain how the Stacks network works, and Hiro’s role as a developer tooling company.”