The U.S. Securities and Exchange Commission has officially closed a three-year investigation into Hiro Systems, a blockchain software developer that previously operated under the name Blockstack. The investigation was related to the company’s token sales, which raised $70 million between 2017 and 2019. This decision by the SEC marks a positive outcome for Hiro Systems and the broader crypto industry, which has been navigating regulatory challenges for years.
In a letter attached to a filing on Friday, the SEC’s division of enforcement stated that based on the information available, they do not plan to recommend any enforcement action against Hiro Systems PBC. However, they also included a disclaimer that this does not mean the company has been completely cleared, and future actions could still result from the staff’s investigation.
Hiro Systems is known for developing tools that allow developers to create applications on Stacks, a layer-2 blockchain that complements Bitcoin. The Stacks protocol was created by Muneeb Ali, a prominent figure in the crypto industry who currently serves as the CEO of Trust Machines and sits on the board of Hiro Systems. Following the launch of the Stacks chain and its token (STX) in 2018, the company initially treated the tokens as securities.
The company conducted token sales under various SEC regulations, including Regulation A+ and exemptions for accredited and international investors. However, in January 2021, a new version of Stacks was introduced with a different consensus mechanism, leading Hiro Systems to believe that the network had achieved full decentralization. This shift prompted the company to no longer consider Stacks tokens as securities, as stated in an SEC filing at the time.
Despite Hiro Systems’ perspective on decentralization, the SEC remained cautious and initiated an inquiry in September 2021. The conclusion of the investigation announced on Friday brings a sense of relief to the company and removes the regulatory uncertainty that has been looming over them.
In a tweet following the filing, Muneeb Ali clarified that the SEC’s probe focused on the Stacks protocol as a whole, rather than just the Hiro entity. This distinction underscores the broader implications of the investigation and its significance for the development of blockchain technologies within the regulatory framework.
Overall, the resolution of the SEC’s investigation into Hiro Systems represents a positive development for the company and the crypto industry, demonstrating a step towards clarity and compliance in a rapidly evolving regulatory landscape. The outcome also highlights the importance of ongoing dialogue between regulators and innovators to foster responsible innovation and growth in the digital asset space.