SEC Drops Investigation into Blockchain Developer Hiro Systems, Formerly Known as Blockstack, Following $70 Million Token Sales

The U.S. Securities and Exchange Commission (SEC) has dropped a three-year-old investigation into Hiro Systems, a blockchain software developer that raised $70 million in token sales from 2017 to 2019. This news comes as a relief to the crypto industry, which has been in a long-standing struggle with the regulator.

The SEC’s division of enforcement stated in a letter attached to a Friday filing that they do not intend to recommend an enforcement action against Hiro Systems, formerly known as Blockstack. However, they also included a disclaimer that this decision does not exonerate the company and that further action may still result from the investigation.

Hiro Systems, led by crypto industry veteran Muneeb Ali, develops tools for developers to build apps on Stacks, a layer-2 blockchain that complements Bitcoin. The company, previously known as Blockstack, launched the Stacks chain in 2018 and treated the tokens it sold as securities.

The investigation by the SEC looked into the Stacks protocol as a whole, not just the Hiro entity. The company had conducted token sales under various SEC regulations, including Regulation A+, Reg D, and Reg S.

In January 2021, a new version of Stacks was launched with a new consensus mechanism called proof of transfer, signaling the network’s full decentralization. In a filing that month, Hiro stated that it was no longer providing essential managerial services to the Stacks Blockchain, leading to the decision to no longer treat Stacks tokens as securities.

After disclosing an inquiry from the SEC’s division of enforcement in September 2021, Hiro has now received confirmation that the investigation has been concluded. This news is a significant win for the company and the crypto industry as a whole.

The conclusion of the SEC’s investigation into Hiro Systems marks a positive development for the company and the broader crypto industry, signaling a step towards regulatory clarity and acceptance.