SEC ends three-year investigation into Bitcoin L2 Stacks and its developer

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The US Securities and Exchange Commission (SEC) has concluded its investigation into Stacks, the layer-2 network built on Bitcoin, and its developer Hiro Systems without any enforcement action. saying Muneeb Ali, co-creator of Stacks. The investigation lasted three years and focused on determining whether Stacks tokens in the early offerings were securities.

Hiro Systems, formerly known as Blockstack, is a blockchain technology developer. In 2018, it launched the first version of the Stacks chain, with its eponymous token (STX).

Initially, the company treated the STX tokens it sold as securities. A portion of the tokens were sold directly to the public under a limited offering under SEC Regulation A+. Other segments of the offering were targeted at accredited investors or international investors.

In early 2021, Hiro transitioned the Stacks network to a new version with an updated consensus mechanism. Hiro believed that the Stacks blockchain was now fully decentralized, as the company no longer provided “essential management services” to the network.

Due to the transition, Hiro Systems claimed that it was no longer necessary to treat STX tokens as securities. However, the SEC did not accept Hiro's explanation and launched an investigation into the company.

The SEC has dropped its investigation into Hiro Systems and Stacks and has indicated that it will not pursue enforcement action.

Ali expressed relief at the end of the Stacks investigation. However, he believes the United States needs a better system to regulate the cryptocurrency industry.

“We are pleased that the SEC has dropped the investigation after so much time and effort. This is the best outcome a company in our industry could ask for, but the United States can do better,” Ali said. “We need a regulatory system that satisfies innovative open protocol developers in their respective places. We will continue to work with policymakers and developers to help make this happen.”

The decision marks the cryptocurrency industry's second legal victory against the SEC this week. It follows the SEC's recent announcement that closed its investigation into Paxosno security charges filed against BUSD, a stablecoin issued by Paxos.

However, the legal battle between the SEC and the cryptocurrency industry continues. The SEC still has ongoing lawsuits against major cryptocurrency exchanges such as Coinbase, Binance, and Kraken. Additionally, blockchain infrastructure developers such as Consensys and Uniswap Labs remain targets of the regulator.

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