SEC Ends Investigation of Blockchain Developer Hiro Systems, Formerly Blockstack

The U.S. Securities and Exchange Commission (SEC) has concluded a three-year investigation into Hiro Systems, a blockchain software developer previously known as Blockstack. This company raised $70 million through token sales from 2017 to 2019.

The conclusion of this investigation, disclosed in a Friday filing, represents another victory for the crypto industry in its prolonged interactions with the regulator. This follows recent news from Fortune that the SEC had also ended an investigation into the stablecoin issuer Paxos.

"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's division of enforcement stated in a letter to Hiro, which was included in the Friday filing. However, the letter included a standard disclaimer that the notice "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."

Hiro develops tools for building apps on Stacks, a layer-2 blockchain that enhances Bitcoin. Stacks was created by Muneeb Ali, a veteran in the crypto industry, who is now CEO of Trust Machines and a board member at Hiro. In a tweet on Friday, Ali clarified that the SEC's investigation covered the Stacks protocol, not just Hiro.

Originally known as Blockstack, the company launched the first version of the Stacks chain and its token (STX) in 2018, treating the tokens as securities. Some token sales were conducted under the SEC's Regulation A+, allowing the sale of limited securities to the public without registration, while others were sold to accredited (Reg D) or international (Reg S) investors.

In January 2021, with the launch of a new version of Stacks and a new consensus mechanism (proof of transfer), Hiro declared the network fully decentralized. In an SEC filing that month, the company stated it was no longer providing "essential managerial services to the Stacks Blockchain," hence it no longer needed to treat Stacks tokens as securities. Despite this, the SEC initiated an inquiry in September 2021, which Hiro disclosed.

The filing on Friday marks the conclusion of that inquiry, effectively lifting a significant regulatory uncertainty for the firm.