Summary:
The SEC has dropped a three-year-old investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack.
This is a significant win for the crypto industry, which has been struggling with the SEC's scrutiny.
Hiro raised $70 million in token sales from 2017 to 2019, and the SEC's probe focused on whether these sales constituted the offering of unregistered securities.
Hiro builds tools for developers to create applications on Stacks, a layer-2 blockchain that complements Bitcoin.
The SEC's decision follows the agency's recent closure of an investigation into stablecoin issuer Paxos.
Stacks' new consensus mechanism (proof of transfer) launched in 2021, and Hiro believes it made the network fully decentralized.
SEC Drops Investigation into Hiro Systems: A Crypto Win
The U.S. Securities and Exchange Commission (SEC) has dropped a three-year-old investigation into Hiro Systems, a blockchain software developer formerly known as Blockstack. This news marks a significant victory for the crypto industry, which has been embroiled in a long-standing battle with the regulator.
Hiro raised $70 million in token sales from 2017 to 2019, and the SEC's probe focused on whether these sales constituted the offering of unregistered securities. The agency concluded that it would not recommend enforcement action against Hiro.
Hiro builds tools for developers to create applications on Stacks, a layer-2 blockchain that complements Bitcoin. Stacks is the brainchild of Muneeb Ali, who is now CEO of Trust Machines, another prominent player in the ecosystem.
The SEC's decision follows the agency's recent closure of an investigation into stablecoin issuer Paxos. These developments suggest a possible shift in the SEC's approach to the crypto industry, although it's important to note that the agency's letter to Hiro includes a caveat that "no action may ultimately result from the staff's investigation."
Stacks' journey towards decentralization
The first version of the Stacks blockchain launched in 2018 with its native token, STX. Initially, Hiro treated the tokens as securities and conducted sales under the SEC's Regulation A+, which allows limited public offerings. They also used exemptions for accredited investors (Reg D) and international investors (Reg S).
In 2021, a new version of Stacks with a new consensus mechanism (proof of transfer) went live. Hiro believed that this upgrade rendered the network fully decentralized. In January 2021, they filed with the SEC stating that they no longer provided essential managerial services to the Stacks Blockchain and therefore the tokens should no longer be classified as securities.
The SEC's investigation likely focused on whether the network had achieved sufficient decentralization to remove the securities classification. The agency's decision to drop the probe suggests that the SEC may be accepting Stacks' claim of decentralization.
This development is another positive sign for the crypto industry, indicating that regulators are becoming more comfortable with the technology and its potential.
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