The U.S. Securities and Exchange Commission (SEC) has ended an investigation into both Stacks—a Bitcoin scaling network—and original developer Hiro Systems, according to a filing released Friday.
"On July 9, 2024, Hiro Systems PBC (“Hiro”) was informed by the staff of the Securities and Exchange Commission (the “SEC”) that the staff concluded its investigation as to the Stacks Blockchain and that based on the information known to the staff as of that date, the staff does not intend to recommend an enforcement action by the SEC against Hiro," the filing reads.
The investigation was opened in 2021, despite Stacks (then Blockstack) network contributors claiming that its token sale had been "SEC-qualified." Hiro Systems hailed the SEC's decision in a blog post Friday.
"This outcome reaffirms our commitment to striving for faithful fulfillment of regulatory compliance and meeting our mission to support developers as they build and innovate on Bitcoin," the post reads.
The Stacks announcement follows a similar one from stablecoin issuer Paxos on Thursday, with the firm announcing that the SEC investigation into its BUSD stablecoin with crypto exchange Binance had also ended without enforcement action.
While this week’s developments are certainly only positive for Hiro, a yearslong SEC investigation like the one the company just endured can have devastating effects regardless of whether they result in charges.
One source with firsthand knowledge of the matter, who requested anonymity to speak candidly, characterized the SEC’s three-year-long investigation into Hiro as “insanely expensive” and “super invasive,” with annual costs surpassing seven figures.
The source also likened Hiro’s many interactions with the SEC to conversing with a brick wall.
An SEC spokesperson declined Decrypt’s request for comment for this story, saying the agency “does not comment on the existence or nonexistence of a possible investigation.”
𝗡𝗘𝗪𝗦: SEC drops a three-year investigation into Stacks with no action.
Earlier this week, we received word from the SEC that after 3 years, they are terminating their investigation into the @Stacks blockchain (the protocol) and Hiro System (a company) with no action.
Stacks…
— muneeb.btc (@muneeb) July 12, 2024
Now, Hiro has survived to see another day. In its blog post this morning, the company celebrated the SEC’s findings as having opened the door to a new chapter.
“The closing of the Hiro and Stacks investigation gives us hope for a bright future for Bitcoin and the next generation of the internet,” it said.
Not all crypto firms that have attracted the SEC’s scrutiny have walked away with such optimism. In late 2022, for example, blockchain publishing platform LBRY announced that it would have to shutter after a nearly two-year battle with the SEC, claiming the company had been “killed by legal and SEC debts.”
Even the rare crypto company like Hiro, which has now successfully avoided securities-related charges, must still tread lightly. The SEC has in no way precluded itself from suing Hiro in the future. And with no industry-specific rules or laws currently guiding American crypto companies, there’s little telling if a future product or offering might incur the regulator’s wrath.
“The vagueness issue isn't going to go away until there's a clear regulatory framework,” the aforementioned source close to Hiro’s encounters with the SEC said.
Editor's note: This story was updated after publication with additional details.
Edited by Andrew Hayward