- The SEC has concluded its three-year investigation into Hiro Systems, formerly known as Blockstack, with no charges levied
- Hiro Systems (then Blockstack) raised $70 million through token sales between 2017 and 2019
- The SEC dropped its probe into Hiro Systems after a three-year investigation
The US Securities and Exchange Commission (SEC) has concluded its three-year investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack. Blockstack raised $70 million through token sales between 2017 and 2019, but the SEC in September 2021, the SEC began looking into the way the platform designated its tokens using the agency’s securities policies. Three years later, the agency has dropped the investigation, just days after it revealed it had dropped its investigation into Paxos.
Blockstack Used SEC Securities Guidelines
Hiro Systems is known for creating tools that allow developers to build applications on Stacks, a layer-2 blockchain designed to enhance Bitcoin. Originally, Blockstack launched the first version of the Stacks chain, along with its token (STX), in 2018. The company initially categorized these tokens as securities.
To facilitate their sale, Blockstack utilized the SEC’s Regulation A+, which permits the sale of limited securities to the public without formal registration. Additionally, some tokens were sold under exemptions applicable to accredited investors (Reg D) or international investors (Reg S).
In January 2021, Hiro Systems introduced a new version of the Stacks blockchain featuring a proof-of-transfer consensus mechanism. The company declared in an SEC filing that it had ceased providing essential managerial services to the Stacks Blockchain, asserting that the network had achieved full decentralization. Consequently, Hiro argued that it was no longer necessary to classify Stacks tokens as securities.
SEC Takes Three Years to Agree
Despite Hiro’s claims, the SEC expressed skepticism, prompting an inquiry from its enforcement division in September 2021. The agency issued the retraction of its investigation on Friday, almost three years after launching it, noting, “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.”
However, the letter included a standard disclaimer that the notice should not be interpreted as an exoneration or a guarantee that no future action would be taken.
The dropping of this investigation represents a second victory for the crypto space after Paxos recently discovered that the SEC had dropped an investigation into its activities regarding the minting of the BNB stablecoin.
