SEC halts Stacks investigation, signaling regulatory changes in crypto

The crypto community won another significant victory against the U.S. Securities and Exchange Commission (SEC) when the regulator closed its investigation into Stacks, a well-known Bitcoin Layer 2 network.

On July 12, Hiro Systems, the developer behind Stacks, announced that the SEC had informed them on July 9 of the decision to close the investigation. Hiro had raised $70 million from token sales between 2017 and 2019.

SEC closes investigation into Stacks

In its letter, the SEC’s Enforcement Division indicated that it would not recommend enforcement action against the company. However, the notice clarified that this decision should not be viewed as an exoneration or a guarantee that no further action would result from the investigation.

Muneeb Ali, board member of Hiro Systems, stated that this outcome is the best a company in the industry could hope for, but that US regulations still need to be improved. He emphasized that Stacks had the first SEC-qualified offering in 2019 and was decentralized before launching its mainnet in January 2021. Despite this, the SEC began its investigation in July 2021.

“We need a regulatory system that meets the developers of innovative open protocols where they are. We will continue to work with policymakers and developers to make this possible. The conclusion of the Stacks investigation gives us hope for a bright future for decentralized technologies for Bitcoin and the next generation Internet,” Ali said.

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The SEC’s decision outraged the crypto community, which pointed out that Stacks’ compliance efforts did not protect the company from critical scrutiny. Billionaire investor Mark Cuban noted that while the SEC’s move was positive, it still poses risks for projects that want to work closely with the regulator.

“If you need any further confirmation of the insanity at the SEC… It’s not like they’ve closed their investigation… It’s crazy because Stacks was one of the VERY FEW tokens that went through the approval process to raise money with their token in 2019,” Cuban commented.

This decision comes during a remarkable week for Stacks’ STX token, which has seen a nearly 20% increase over the past seven days and is trading at around $1.7 at press time, according to BeInCrypto.

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This is the second crypto-related investigation that the SEC has closed this week. On July 11, Paxos announced that the SEC had decided not to take any enforcement action related to its investigation into the Binance USD (BUSD) stablecoin.