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SEC Concludes Investigation Of Hiro Systems And Paxos, Crypto Industry Celebrates

By Ruholamin Haqshanas

Last Updated: Jul 15, 2024

SEC Concludes Investigation of Stacks Developer Hiro Systems One Day After Paxos Case Closure

The US Securities and Exchange Commission (SEC) has closed its three-year investigation into Hiro Systems. The agency revealed its decision against the blockchain software developer, formerly known as Blockstack, in a filing on Friday, 12 July 2024.

Notably, the SEC’s conclusion of the investigation comes just a day after it closed a separate case involving stablecoin issuer Paxos, marking another instance where the regulatory body has opted not to pursue enforcement actions against crypto entities.

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No Action Against Hiro Systems

“Based on the information we have as of this date, we do not intend to recommend an enforcement action by the Commission against Hiro Systems PBC,” the SEC’s division of enforcement said.

However, the letter also included a standard disclaimer emphasizing that the notice does not imply exoneration or preclude future actions resulting from ongoing inquiries.

Hiro Systems garnered attention in the crypto world by raising $70 million through token sales between 2017 and 2019.

The platform specializes in developing tools for building decentralized applications on the Stacks blockchain – a layer-2 protocol designed to complement Bitcoin.

Founded by Muneeb Ali, a prominent figure in the crypto industry and CEO of Trust Machines, Stacks launched its initial version in 2018 alongside its native token, STX.

Initially, Hiro Systems treated the tokens it sold as securities, adhering to SEC regulations such as Regulation A+ for public offerings and exemptions under Regulation D and S for accredited and international investors, respectively.

In January 2021, the company introduced a new consensus mechanism, dubbed proof of transfer, which Hiro argued decentralized the Stacks network sufficiently to reclassify STX tokens. Despite these assertions, the SEC remained cautious, initiating an inquiry in September 2021.

The conclusion of the investigation, as indicated in Friday’s filing, brings relief to Hiro Systems, potentially removing a regulatory cloud that has loomed over the company.

“The closing of the Stacks investigation gives us hope for a bright future for decentralized technologies for Bitcoin and the next-generation internet,” Ali said in a post on X in response to the SEC’s decision.

SEC Drops Paxos Investigation Without Enforcement Action

Last week, the SEC also concluded its investigation into stablecoin issuer Paxos without recommending any enforcement action.

In a blog post, Paxos Trust Co., based in New York, confirmed the closure of the probe regarding its USD-backed stablecoin, formerly known as Binance USD (BUSD).

In February 2023, the SEC issued Paxos a Wells notice, indicating potential legal action over allegations that BUSD constituted an unregistered security.

“Paxos Trust Company has always maintained that its USD-backed stablecoins are not securities under federal securities laws and that the Wells Notice was unwarranted and unjustified,” the company said in the blog post.

Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.

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Disclaimer

Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.

Ruholamin Haqshanas
Ruholamin Haqshanas
Crypto Journalist

Ruholamin Haqshanas is an accomplished crypto and finance journalist with over three years of experience. He has been featured in various high-profile outlets, including Cryptonews.com, Investing.com, 24/7 Wall St, and Business2Community. Read More

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