The U.S. Securities and Exchange Commission dropped a three-year-old investigation into Hiro Systems, a blockchain software developer (formerly known as Blockstack) that raised $70 million in token sales from 2017 to 2019, according to a Friday filing.

The probe's conclusion is another win for the crypto industry in its years-long struggle with the regulator and follows news, reported by Fortune earlier this week, that the agency had ended an investigation into stablecoin issuer Paxos.

"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, formerly known as Blockstack PBC," the SEC's division of enforcement said in a letter to Hiro attached to the Friday filing.

The letter contained a boilerplate caveat that such a 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 makes tools for developers to build apps on Stacks, a layer-2 blockchain that supplements Bitcoin. Stacks is the brainchild of crypto industry veteran Muneeb Ali, who is now CEO of Trust Machines, another builder in the ecosystem, and a board member at Hiro.

In a tweet Friday after the filing came out, Ali wrote that the SEC's probe looked into the Stacks protocol, not just the Hiro entity.

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

Sufficiently decentralized?

The company, then known as Blockstack, launched the first version of the Stacks chain, with its eponymous token (STX), in 2018. Early on, the company treated the tokens it sold as securities.

It conducted a portion of its token sales under the SEC's Regulation A+, which allows issuers to sell limited amounts of securities to the public without registering. Other tokens were sold under the exemptions for securities sold only to accredited (Reg D) or international (Reg S) investors.

In January 2021, a new version of Stacks launched, with a new consensus mechanism (proof of transfer). To Hiro's mind, the network had become fully decentralized.

In an SEC filing that month, the company said it was no longer providing "essential managerial services to the Stacks Blockchain," and therefore it was no longer necessary to treat Stacks tokens as securities.

Apparently, the SEC was skeptical of that interpretation. In September 2021, Hiro disclosed that it was responding to an inquiry from the division of enforcement.

Friday's filing marks the end of that inquiry and, presumably, the removal of a sword of Damocles that had been hanging over the firm.

UPDATE (July 12, 2024, 14:10 UTC): Adds tweet from Muneeb Ali; adjusts headline to say probe looked at Stacks protocol, not just the Hiro entity.

Stacks Stacks Tokens Muneeb Ali SEC SEC Enforcement Securities and Exchange Commission Tokens

Marc Hochstein

As Deputy Editor-in-Chief for Features, Opinion, Ethics and Standards, Marc oversees CoinDesk's long-form content, sets <a href="https://www.coindesk.com/ethics/">editorial policies</a> and acts as the ombudsman for our industry-leading newsroom. He is also spearheading our nascent coverage of prediction markets and helps compile The Node, our daily email newsletter rounding up the biggest stories in crypto. From November 2022 to June 2024 Marc was the Executive Editor of Consensus, CoinDesk's flagship annual event. He joined CoinDesk in 2017 as a managing editor and has steadily added responsibilities over the years. Marc is a veteran journalist with more than 25 years' experience, including 17 years at the trade publication American Banker, the last three as editor-in-chief, where he was responsible for some of the earliest mainstream news coverage of cryptocurrency and blockchain technology. DISCLOSURE: Marc holds BTC above CoinDesk's disclosure threshold of $1,000; marginal amounts of ETH, SOL, XMR, ZEC, MATIC and EGIRL; an Urbit planet (~fodrex-malmev); two ENS domain names (MarcHochstein.eth and MarcusHNYC.eth); and NFTs from the Oekaki (pictured), Lil Skribblers, SSRWives, and <a href="https://www.coindesk.com/business/2021/09/20/metal-fans-snap-up-gwars-scumdog-and-slave-nfts-amid-market-frenzy/">Gwar</a> collections.