The SEC concludes its three-year probe into Hiro Systems’s $70 million token sales without taking any legal action.
TakeAway Points:
- The SEC’s three-year investigation into Hiro Systems, formerly known as Blockstack, which raised $70 million in token sales between 2017 and 2019, has come to a close.
- The SEC’s recent decision to end its investigation into stablecoin issuer Paxos, which suggested a possible loosening of regulatory oversight of the cryptocurrency sector, comes after this.
- The business now views Hiro’s Stacks protocol and its STX token, which were once regarded as securities, as decentralised.
SEC Ends Investigation into Hiro Systems
The U.S. Securities and Exchange Commission (SEC) has concluded a three-year investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack. The probe, which scrutinized the company’s $70 million token sales from 2017 to 2019, ended without any enforcement action, according to a Friday filing. This development marks a significant victory for the crypto industry, which has been grappling with regulatory scrutiny for years.
“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,” stated the SEC’s division of enforcement in a letter attached to the filing.
However, the letter included a standard disclaimer that it should not be interpreted as an exoneration or a guarantee that no future action will be taken.
Hiro and Regulatory Issues
Hiro Systems, which develops tools for building applications on the Stacks blockchain, has been under the regulatory microscope since it launched the first version of the Stacks chain and its token (STX) in 2018. Initially, the company treated the tokens as securities, conducting sales under the SEC’s Regulation A+, which allows limited securities sales to the public without full registration. Additional tokens were sold under exemptions for accredited (Reg D) and international (Reg S) investors.
In January 2021, Hiro launched a new version of Stacks with a proof-of-transfer consensus mechanism, claiming the network had become fully decentralized. Consequently, the company argued it no longer needed to treat Stacks tokens as securities, as it was no longer providing “essential managerial services to the Stacks Blockchain.” Despite this, the SEC remained skeptical, leading to the inquiry that has now concluded.
Other Investigation also concluded
The SEC’s decision to end its investigation into Hiro follows closely on the heels of another significant regulatory development. Earlier this week, the SEC concluded its investigation into Paxos, the issuer of the stablecoin BUSD. Paxos had been under scrutiny for allegedly issuing unregistered securities. The New York State Department of Financial Services had previously directed Paxos to cease issuing new BUSD tokens, which had a circulation of approximately $16 billion at the time.
“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified,” a Paxos spokesperson said.
“We are proud of our relentless advocacy for stable-value digital assets and that the SEC staff determined it will not bring enforcement action against Paxos in connection with BUSD.”
