SEC Drops Investigation of Bitcoin L2 Stacks Developer Hiro

The U.S. Securities and Exchange Commission (SEC) has dropped a three-year investigation into blockchain software developer Hiro Systems (formerly Blockstack), which conducted a $70 million token sale from 2017 to 2019.

“Based on the information we have as of this date, the Commission does not intend to recommend an enforcement action against Hiro Systems PBC, formerly known as Blockstack PBC,” the SEC’s enforcement division wrote in a letter to Hiro.

The letter included a warning that this notification “should in no way be construed as an exoneration of the company or that the personnel investigation could not result in any action.”

The company, formerly known as Blockstack, launched the first version of its Stacks chain with its eponymous token, STX, in 2018 and treated the tokens it sold as securities.

Some of the token sales were conducted under the SEC’s Regulation A+, which allows issuers to sell a limited amount of securities to the public without registration. Other tokens were sold under exemptions for securities sold only to accredited (Reg D) or international (Reg S) investors.

In January 2021, a new version of Stacks was released with a new consensus mechanism (proof of transfer). According to Hiro, the network had become fully decentralized.

The company argued in an SEC investigation that month that it no longer provided core governance services to the Stacks blockchain and therefore Stacks tokens should not be treated as securities.

However, the SEC was skeptical of this interpretation. Hiro announced in September 2021 that it had responded to the investigation from the enforcement agency and that the process was ongoing.

The case file shared today indicates that this investigation is over and the pressure on the company is likely lifted.