Today, Blockstack PBC released a summary of a legal memorandum supporting plans for the Stacks cryptocurrency (STX) to no longer be considered a security under U.S. law after the launch of the Stacks 2.0 blockchain. The summary is of a memorandum prepared by Blockstack PBC’s independent outside securities counsel, Wilson Sonsini Goodrich & Rosati, PC (WSGR). It outlines how the anticipated change of status should permit mining to occur on the Stacks 2.0 blockchain in the U.S. without having to register Stacks as securities, and how it will permit U.S. persons to trade Stacks on non-securities exchanges.
Historically, in light of legal uncertainties, Blockstack PBC has adopted a conservative position and treated Stacks as securities in the U.S. under the U.S. Supreme Court’s Howey test. Our dedication to compliance eventually led to the SEC-qualified offering of Stacks in 2019, which was the first qualified offering of a digital token in the U.S. At the time, Blockstack disclosed its plan for Stacks to eventually become non-securities, which would permit mining in the U.S. without registration of Stacks as securities and trading in the U.S. on non-securities exchanges.
A key consideration under Howey is whether Blockstack PBC, or anyone else, plays an essential managerial role that could reasonably be expected to be the driver of potential returns for Stacks holders. If it does, then Stacks holders might reasonably look to that essential manager for material information about the tokens, thereby triggering U.S. federal securities law disclosure obligations.
Stacks 2.0 and Future Non-Security Status
Since 2019, Blockstack PBC has been working on the Stacks 2.0 blockchain, which will bring secure apps and smart contracts to Bitcoin, giving developers the tools necessary to bring about a truly user-owned internet. Upon the launch of Stacks 2.0, Blockstack PBC anticipates that neither it nor anyone else will play an essential managerial role under Howey because the operation and governance of the Stacks 2.0 blockchain will be so diffuse and decentralized. In addition, neither Blockstack PBC nor any other entity will have material information about Stacks, the blockchain, or the operations of the blockchain that is not also widely known by others in the Stacks blockchain ecosystem.
For example, with the launch of Stacks 2.0, Blockstack PBC will no longer have the ability to unilaterally make changes to the Stacks blockchain or issue new Stacks tokens, and in general, it will have no control over any future development of the blockchain and Stacks tokens. Any significant changes to the Stacks blockchain will need to be approved by a majority of the voting power from miners providing mining services to the blockchain network, and then accepted by the Stacks community. In addition, Blockstack PBC does not plan to be a miner on the Stacks 2.0 blockchain or to run an active node in the “Stacking” program, where Stacks holders can earn Bitcoin by locking their Stacks to the network.
​​Furthermore, the Stacks ecosystem has seen the organization of several new independent entities that have become participants in the ecosystem, a wide distribution of Stacks, and decentralization of decision-making power over the network. Several developers have moved from Blockstack PBC to independent organizations, while the Stacks Foundation has taken on the role of Stacks-related governance, research and development, education, and grants, and oversees network upgrades. More recently, Daemon Technologies and Freehold have joined the ecosystem with Daemon working to build community in Asia and supporting miners with new tools, while Freehold is empowering the Stacks community to contribute to the Stacks ecosystem in meaningful, organized ways.
​​As Stacks 2.0 approaches completion, the role of Blockstack PBC as the primary developer and builder of public infrastructure is ending. Blockstack PBC will rebrand itself as Hiro Systems PBC. After the Stacks 2.0 launch, Hiro PBC will focus on building developer tools on top of the public infrastructure and will not be responsible for the Stacks blockchain.
​​In consideration of these facts, and many others, the summary of the memorandum concludes that Stacks should no longer be considered securities under Howey after the launch and adoption of Stacks 2.0.
This communication contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. In some cases, you can identify forward-looking statements by the following words: “will,” “expect,” “would,” “intend,” “believe,” or other comparable terminology. These statements involve risks, uncertainties, assumptions, and other factors that may cause actual results or performance to be materially different. We cannot assure you that the forward-looking statements will prove to be accurate. These forward-looking statements speak only as of the date hereof. We disclaim any obligation to update these forward-looking statements.