Controversial 3-Year SEC Investigation Into Bitcoin L2 Stacks Concludes With No Charges

The US Securities and Exchange Commission (SEC) has concluded its three-year investigation into Bitcoin Layer 2 (L2) blockchain Stacks (STX) and Hiro Systems without taking any action. 

SEC Ends Probe Into Stacks

Muneeb Ali, co-creator of the Stacks protocol, announced the termination of the SEC investigation through a social media post on Friday, expressing satisfaction with the outcome and stating that after providing all requested information and explaining the workings of the Stacks network and Hiro’s role as a developer tooling company, the SEC decided to drop the investigation. Ali stated:

We’re pleased that the SEC dropped the investigation after this time and effort. This is the best outcome a company in our industry could ask for, but the US can do better. We need a regulatory system that meets builders of innovative open protocols where they are. We’ll continue working with policymakers and developers to help make this happen. The closing of the Stacks investigation gives us hope for a bright future for decentralized technologies for Bitcoin and the next-generation internet. 

This development marks another setback for the regulator after it recently dropped another case against brokerage firm Paxos after a year-long investigation involving Binance’s BUSD stablecoin, which a court ultimately ruled was not a security under the SEC’s Howey test.

No Exoneration Or Guarantee Of Future Action

The SEC, in a letter dated July 9, informed the Stacks protocol that it had concluded the investigation and did not intend to recommend any enforcement action against Hiro Systems, formerly known as Blockstack. 

However, the SEC clarified that the notice should not be interpreted as a dismissal or a guarantee that no action may result from the staff’s investigation. The letter further reads:

We are providing this notice under the guidelines set out in the final paragraph of Securities Act Release No. 5310, which states in part that the notice “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.

Hiro Systems, in a blog post summarizing the events of the past year, stated that the SEC’s Enforcement Division initiated an investigation into Hiro and the Stacks blockchain in January 2021, for which the firm complied with information requests and clarified the role of the Stacks network and Hiro’s involvement. The blog post noted:

Our belief in enabling developers is also why we still believe strongly in the need to create a clear path and regulatory framework in the US, and we look forward to continued opportunities to help shape policy to meet builders of innovative open protocols where they are. The closing of the Hiro and Stacks investigation gives us hope for a bright future for Bitcoin and the next generation of the internet.

Stacks’ native token STX is trading at $1.68, surging over 5% in the 24-hour time frame following the regulatory victory against the US SEC. 

Featured image from DALL-E, chart from TradingView.com