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Dear Bankless Nation,

Regulators are on a warpath. This week, they took aim at US-based exchange Kraken in their latest bout of “regulation by enforcement.”

For our weekly recap, we dig into:

  1. SEC says no to staking
  2. Operation Choke Point 2.0
  3. Maker vs Aave
  4. Gemini vs Genesis/DCG
  5. CoW Swap hack

- Bankless Team

📅 Weekly Recap

Here’s a recap of the biggest crypto news from the second week of February.

1. SEC says no to staking

“…And let this day be forever cursed by we who ready to wake...the Kraken”

Staking in crypto is carried out in one of two ways: through a centralized crypto firm, or a decentralized protocol like Lido or Rocketpool. With either, the promise is a yield in exchange for a small fee paid to these services.

In yet another case of the SEC’s many instances of “regulation by enforcement”, US-based exchange Kraken agreed to pay a $30 million fine and, more importantly, as part of their settlement — shut down their staking-as-a-service program for US customers.

According to the SEC’s complaint, since 2019, Kraken has offered and sold its crypto asset “staking services” to the general public, whereby Kraken pools certain crypto assets transferred by investors and stakes them on behalf of those investors.

Kraken complied by promptly shuttering its staking service for U.S. customers. Non-US clients can continue to stake as usual.

Is the SEC classifying staking per se as a “security”? Lawyer Mike Selig argues that Kraken stepped on the SEC’s toes because its staking yields were derived from pooling customer cryptoassets i.e., an active form of investment.

Coinbase has stated that this doesn’t impact their staking-as-a-service program, which has rewards the company claims are consistent with Ethereum’s protocol emissions (unlike Kraken which was offering some higher yields).

In her dissenting post, SEC Commissioner Hester Peirce is calling the SEC’s decision “not an efficient or fair way of regulating” and that the SEC was “shutting down entirely a program that has served people well” in response to a registration violation.

A day before the SEC’s actions, Coinbase CEO Brian Armstrong labeled the regulatory decision of banning crypto staking for retail a “terrible path” that would incentivize companies to operate offshore, similar to FTX.

In separate staking-related news, Fintech giant Revolut is about to begin offering crypto staking to European customers.

Tokens of liquid staking services – a decentralized form of crypto staking – are also on the up.

Lido also announced its V2 upgrade which brings its staking router that allows anyone to become a node operator, alongside direct stETH withdrawals from the Beacon Chain.

2. Operation Choke Point 2.0

American regulators are collectively undertaking a covert operation against the crypto industry by pressuring banks to cut off their financial services. At least that’s the claim by Nic Carter of Castle Island in a bombshell article published this week.

Carter details a list of regulatory developments in the past two months that points to a continued trend towards stifling the crypto sector. This includes the DoJ’s investigation against crypto-friendly banks Silvergate and Signature, multiple policy statements by the Fed, FDIC, National Economic Council and OCC warning banks against engaging with crypto firms, holding crypto or issuing stablecoins, the Fed’s denial of Custodia’s Federal Reserve membership, Binance suspending USD transfers for retail, and much more.

Carter is terming this a revival of “Operation Choke Point”, an Obama administration-style strategy in 2013 that threatened regulatory action and pressured banks not to serve industries deemed too risky, such as poker companies, gun dealers, pornography producers and payday lenders.

Spurring regulators against fiat on/off-ramps is largely due to the FTX collapse last November.  Jake Chervinsky is terming this a kind of “regulation by blog post”.

Carter speculates that this will have the impact of driving crypto capital from big to smaller banks, privileging crypto companies with connections to Washington, reducing U.S. crypto competitiveness and hurting crypto businesses that don’t want to deal with the uncertainty of regulatory risk.

3. Maker vs Aave

Aave’s GHO stablecoin is here on the Goerli Testnet.

When Aave announced GHO in July 2022, it sparked concern with Maker stakeholders that GHO would undermine DAI’s competitiveness.

Those concerns have led to the launch of Spark Protocol, Maker’s new lending market that is a fork of Aave V3. Spark plans to integrate direct DAI deposits from Maker and aims to launch in April.

Spark is also integrating with existing DeFi primitives. One such integration is with fixed rate protocol Element Finance’s new AMM DEX Hyperdrive, which lets users take 3-, 6- or 12-month term DAI loans without maturity dates.

4. Gemini vs Genesis/DCG

The latest developments in the Gemini vs Genesis/DCG is leading to positive news for Gemini Earn customers.

Cameron Winklevoss announced on Twitter that Gemini has reached an in-principle agreement with Genesis for Earn users to recover their funds.

Of the ~$900M owed to users, Gemini will contribute ~$100M.

The rest of the recovery funds will come from Genesis liquidating its bankrupt entities and winding down its loan book, and DCG selling shares in its Ethereum Fund, Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund.

In addition, DCG will convert the $1.1B promissory note that it gave to Genesis for its failed Three Arrows Capital claims into stock equities, which will be paid to creditors for ~$500M in two tranches.

In all, Genesis creditors can expect an estimated 80% of funds recovery.

5.  CoW Swap hack

CoW Swap DEX was hacked for 550 BNB and transferred to Tornado Cash. The exploit stems from the protocol’s “solver”, an external party who posts a slashable bond and whose purpose is to find the best execution routes for traders.

The solver in question apparently approved a malicious contract that led to the exploit.

User funds weren’t impacted.

Other news:

🙏 Together with 🦊 MetaMask Learn 🦊

MetaMask Learn is an educational resource to help people understand what web3 is, why it matters, and how to get started. While you may understand core concepts of this decentralized technology, many don’t—consider adding MetaMask Learn to your onboarding guides if you’re a dapp developer or NFT creator to give your community the welcome they deserve.

📅 Recap for the 2nd week of February, 2022


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  3. 📘 The State of Optimism
  4. 📘 5 Things I Learned at StarkWare Sessions
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  2. 📘 Bitcoin NFTs … Again ✌️
  3. 📘 The Blooming NFT Landscape 🌄


  1. 📘 Journey with Deadmau5 through the Metaverse | Decentralized Arts
  2. 📘 Specialized Stables | DeFi Download


  1. 📺 Will Solana Make It? with Anatoly Yakovenko
  2. 📺 NFTs Attacking Bitcoin? with Casey Rodarmor & Eric Wall
  3. 📺 What's going on with Canto?
  4. 📺 The StarkNet Fathers Uri Kolodny & Eli Ben-Sasson | StarkWare Sessions #1
  5. 📺 Smart Contract Wallets with Motty Lavie of Braavos | StarkWare Sessions #2
  6. 📺 Account Abstraction & EIP 4337 with Yoav Weiss | StarkWare Sessions #3
  7. 📺 Briq and StarkNet Governance with Sylve Chevet | StarkWare Sessions #4
  8. 📺 Starknet Identity with Hadrien of Sismo | StarkWare Sessions #5
  9. 📺 Open-Source Funding with Gregoire of Only Dust | StarkWare Sessions #6
  10. 📺 Herodotus Cross-Chain Data | StarkWare Sessions #7
  11. 📺 Cartridge Starknet Gaming with Tarrence | StarkWare Sessions #8
  12. 📺 zk-Hardware with Omer of Ingonyama | StarkWare Sessions #9


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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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