In a significant development for the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has concluded its three-year investigation into Hiro Systems, the developer behind the Bitcoin Layer-2 protocol Stacks, without taking any enforcement action as reported by FX Street. This decision comes just one day after the SEC ended its investigation into Paxos, a Web3 infrastructure platform, also without pursuing any enforcement.
Background of the Investigation
The SEC’s probe into Hiro Systems, formerly known as Blockstack, began in 2021. The investigation focused on whether the company’s native token, STX, was being sold as a security. Hiro had raised $70 million through token sales between 2017 and 2019, treating STX as a security under U.S. law since its launch in 2018. The company had been regularly filing with the SEC under Regulation A+, which allows for a limited public sale of securities without full registration.
Decentralization and Regulatory Compliance
In 2021, Hiro Systems argued that the Stacks blockchain had become sufficiently decentralized, meaning the company no longer needed to treat STX tokens as securities. This decentralization was a key point in Hiro’s defense, according to Cointelegraph. The company claimed it no longer provided essential managerial services to the Stacks blockchain. Throughout the investigation, Hiro Systems cooperated fully, providing all requested information to the SEC.
Implications for the Crypto Industry
The termination of the SEC’s investigation into Hiro Systems is seen as a victory for the broader cryptocurrency industry. It adds to a series of recent setbacks for the SEC in its efforts to regulate the crypto space. The SEC has faced challenges in its actions against major firms like Ripple, Binance, Kraken, and Coinbase, with several court rulings limiting the regulator’s ability to enforce existing laws.
The recent Supreme Court ruling in Loper Bright v. Raimondo, which overruled the Chevron Doctrine, has further curtailed the SEC’s regulatory latitude. This doctrine previously allowed regulators broad discretion in interpreting and enforcing laws.
Market Reaction
Following the announcement, the price of STX, the native token of the Stacks protocol, rose by over 5%. This positive market reaction underscores the significance of the SEC’s decision and the growing confidence in the crypto community regarding regulatory clarity.
References:
https://cointelegraph.com/news/sec-drops-investigation-bitcoin-stacks-developer-hiro-filing
