SEC Will Not Take Legal Action Against Bitcoin Layer 2 Ecosystems Hiro and Stacks
Bitcoin L2 development tool Hiro announced on July 13th that the U.S. Securities and Exchange Commission (SEC) will not take any further legal action against Hiro and Stacks.
Hiro and Stacks are startup companies specializing in building Bitcoin Layer 2 smart contracts and infrastructure tools. Stacks has been expanding its development over the past few years and currently includes Ordinals, BRC-20, Runes, Stacks, and the upcoming new sBTC Bitcoin asset.
One of the unique features of Stacks is that it extends the functionality of Bitcoin beyond just cryptocurrency, becoming the foundation for decentralized applications (DApps) and smart contracts. Since Stacks is an ecosystem anchored to the first layer of Bitcoin, it does not change any functionality of Bitcoin, including its popular security and stability.
Stacks dApps are open and modular, allowing developers to build on top of each other’s applications and create functionalities that are not possible in other ways. Additionally, because Stacks uses Bitcoin as its underlying layer, everything that happens in the Stacks ecosystem is supported by the most secure blockchain.
SEC’s regulatory standards are ambiguous and slow
On July 9th, 2024, Amy Gwiazda, Assistant Director of the SEC, sent a notice to the Hiro team informing them that the investigation has ended and she will not recommend any legal action by the SEC against Hiro and Stacks.
The letter reads as follows:
“We have concluded our investigation of Stacks Blockchain SF4470 and, based on the information we currently have, we do not intend to recommend that the SEC Commission take any enforcement action against Hiro Systems PBC (formerly known as Blockstack PBC).”
We made this determination based on the results of our investigation under the Securities Act Rule 5310, which states, “The fact that we do not presently intend to take enforcement action should not be construed as indicating that the party has been exonerated or that no action will ultimately be taken.” For more information on Securities Act Rule 5310, please see the following link: http://www.sec.gov/divisions/enforce/wells-release.pdf.”
After three years of investigation, the SEC has apparently given up on filing lawsuits against technology companies as securities, even though the securities laws still exist.
In response to this investigation result notice, Hiro stated on X:
“On July 9, 2024, the SEC Commission notified us that the investigation has ended and they do not intend to recommend enforcement action by the SEC. Given the current state of blockchain technology regulation in the United States, this is the best outcome that any company in a similar position could hope for. This result reaffirms our commitment to faithfully comply with regulatory compliance and fulfill our mission to support developers in innovating on Bitcoin.”
Since January 2021, when Stacks launched its Mainnet, the SEC has been investigating Hiro and Stacks’ blockchain technology. Over the past three years, the Stacks team has provided all relevant information to the SEC and worked to explain how the Stacks network operates and Hiro’s role in it. We are proud to be a company centered around Bitcoin developers, and our tools have been continuously developed over the past few years.
We support the belief of developers, and we firmly believe that a clear path and regulatory framework for Bitcoin L2 is necessary to be created in the United States. We look forward to continuing to have the opportunity to help shape policies to meet the needs of builders of open innovation protocols. The outcome of the Hiro and Stacks investigation gives us hope for a bright future for Bitcoin and the next generation of networks.”
Prominent Bitcoin commentator Nathaniel Whittemore said on the show, “The U.S. Securities and Exchange Commission has abandoned its three-year investigation into the Stacks ecosystem. This is a good outcome, but the cost is absurd, which shows how counterproductive and slow the SEC’s enforcement and regulatory strategy is.”
The SEC has always had multiple standards regarding whether blockchain is technology or securities. This time, it took a lenient approach to the Bitcoin Layer 2 ecosystem of Stacks, even if it interpreted Securities Act Rule 5310 in the same way, it still passed the scrutiny of the reviewers. This is in stark contrast to SEC’s relentless pursuit of XRP, which claims to be a blockchain technology company. The litigation between the two parties has not yet been concluded, but it can be seen that the SEC cannot grasp the scale and standards of walking and observing.
Hiro, SEC, Stacks, Bitcoin Layer 2
