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Solidus Labs, which makes market surveillance tools to flag manipulation across cryptocurrency trading platforms, has raised $20 million.
Announced Monday, Solidus’ $20 million Series A was led by Evolution Equity Partners and included Hanaco Ventures, which led the startup’s $3.75 million seed round in early 2019.
The Solidus Series A attracted heavy hitters from the crypto trading space like FTX and Fidelity Investments-affiliated VC Avon Ventures. Notably, former regulators also joined the round: Commodity Futures Trading Commission (CFTC) alums Chris Giancarlo and Daniel Gorfine and former Securities and Exchange Commission (SEC) Commissioner Troy Paredes.
Keeping tabs on whether traders “paint the tape” is particularly tough across crypto’s fragmented legion of trading venues. But it’s crucial to help U.S. regulators give the green light to a cryptocurrency exchange-traded fund (ETF).
A group of former Goldman Sachs bankers formed Solidus Labs back in 2018, with the thesis that a lack of appropriate compliance and risk-mitigation tools are a barrier for mainstream crypto adoption.
“One such signal was the SEC’s continual rejection of a bitcoin ETF due to the lack of sufficient surveillance and monitoring,” Solidus Labs CEO Asaf Meir said in an interview. “The notion of trade surveillance has been largely addressed in the traditional markets of equities, options and futures. So why is it so different with digital assets?”
A deep dive later, the team found that crypto’s market structure led to a particular set of manipulation topologies such as spoofing, pump and dumps, layering and wash trading.
The Solidus approach, which employs machine learning to understand how a large matrix of trading accounts behaves, enables detection and prevention (as opposed to blockchain analytics firms like Chainalysis, CipherTrace and Elliptic, which are all about tracing transactions after the fact).
“For example, if we have a Hong Kong-based exchange and they’re experiencing, let’s say, a pump and dump in a certain coin pair, we can preemptively warn the rest of our client base to avoid it before it even reaches their shores,” Meir said.
Armed with the new funding, Solidus plans to open an office in East Asia and more or less double its headcount to about 60 or 70 by the end of the year, Meir said.