Compliance at Twinstake

As a leading institutional staking provider, Twinstake takes a compliance-first approach and focuses on meeting the rigorous risk management needs of our clients, in both our business processes and our product offerings. We conduct rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) screening on all of our clients, and regularly track if there are any unexpected delegations from potentially risky parties.

To meet the needs of our institutional clients, we default to high standards of compliance and risk mitigation in our Ethereum relayer setup, as well as offering additional products that enable our clients to improve their risk mitigation beyond our default setup.

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KYC /AML Screening

Twinstake works exclusively with institutional clients and has a rigorous KYC/AML screening process in place for all clients, custodians, and partners. Our onboarding function adheres to a comprehensive set of policies and standards grounded in OFAC (the U.S. Office of Foreign Asset Control) and sanction regimes. These measures are implemented to ensure full compliance with all applicable regulations.

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Delegation Screening

We perform regular screenings to mitigate the risk of exposure to any OFAC or sanctions-related issues. Each delegation received on Twinstake validator addresses is scrutinized using a best-in-class compliance screening tool. This also allows us to perform pre-delegation checks directly on-chain, screening for potential risks such as exposure to illicit funds, money laundering, amongst other risks. These measures reinforce our commitment to maintaining the highest standards of regulatory compliance and operational integrity.

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Twinstake’s Approach to Compliant Ethereum Block Production

Twinstake takes a compliance-first approach when creating blocks and enable a validator configuration that helps clients manage risk related to compliant block production. Twinstake uses a framework consisting of three levels of risk mitigation and block-building compliance on Ethereum:

A Level 0 approach would connect to all available relayers and include all available transactions. A Level 0 approach does not filter any transactions or noncompliant relayers. This could expose block producers to the risk of creating a block which includes transactions where there are direct and indirect participants who are sanctioned or illicit actors.

A Level 1 approach is a compliance-first approach to producing blocks which requires relayers to filter out transactions associated with addresses on the Office of Foreign Asset Control (OFAC) Specially Designated Nationals (SDN) list, the USA’s primary sanctions list (see here).

No international regulation specifies that validators, or other block-producing entities, have a legal requirement to filter these transactions. However, section 560 of OFAC's 'Questions on Virtual Currency' guidance notes:

"...As a general matter, U.S. persons and persons otherwise subject to OFAC jurisdiction, including firms that facilitate or engage in online commerce or process transactions using digital currency, are responsible for ensuring that they do not engage in unauthorized transactions prohibited by OFAC sanctions, such as dealings with blocked persons or property, or engaging in prohibited trade or investment-related transactions."

As a result, many US-based entities or organisations with US customers choose to connect only to OFAC-compliant relayers to follow a risk-averse interpretation of this guidance and reduce the likelihood that they inadvertently enable the movement of illicit funds. This has become an industry-standard approach to block production for any institutions.

Twinstake meets our client needs by adopting a Level 1 approach by default. Our Ethereum validator configuration connects only to OFAC-compliant relayers. This setup helps our clients manage regulatory risk and simplify their approach to compliance.

A Level 2 approach would include stricter filtering criteria to avoid addresses affiliated with a broader set of questionable transactions and entities. Some institutional clients prefer to apply higher levels of scrutiny to their compliant block production, filtering out transactions related to financial crimes or other illicit activity. Twinstake offers an enhanced compliance offering that allows our clients to achieve this higher level of scrutiny by adding a layer of more stringent filtering to our standard OFAC-compliant Ethereum validator configuration.