Crypto Monitoring Startup Raises Series A Funding

Solidus Labs Secures $20 Million in Series A Funding for Crypto Surveillance

Solidus Labs, a provider of surveillance and risk-monitoring software for cryptocurrency trading platforms, has announced a $20 million Series A funding round. This investment arrives at a crucial time, coinciding with increased focus from the U.S. government on enhancing cryptocurrency monitoring efforts, exemplified by the U.S. Treasury’s push for stricter IRS compliance.

Company Origins and Growth

Solidus Labs was established in 2017 by former electronic trading professionals from Goldman Sachs. Recognizing a gap in compliance tools as Bitcoin gained prominence, the founders aimed to facilitate broader institutional adoption of cryptocurrencies by addressing these shortcomings.

Currently, Solidus Labs has a team of 30 employees and has raised a total of $23.75 million. The company is actively expanding its workforce to meet escalating demand. The recent funding round was spearheaded by Equity Partners, with participation from Hanaco Ventures, Avon Ventures, 645 Ventures, the FTX exchange, and former regulatory officials Chris Giancarlo and Troy Paredes.

Client Base and Services

TC: Can you describe your typical clientele?

AM: We serve a diverse range of entities, including exchanges, broker-dealers, OTC desks, liquidity providers, and regulators. Essentially, any organization exposed to the risks associated with buying and selling cryptocurrencies and digital assets benefits from our services.

TC: What specific issues does your software identify?

AM: Our primary focus is detecting volume and price manipulation, encompassing tactics such as wash trading, spoofing, layering, and pump-and-dump schemes. We also continually develop new alerts tailored to the unique characteristics of the cryptocurrency market.

Demand surged by 400% in 2020, driven by increased regulatory scrutiny and growing institutional interest in the asset class. Regulators are emphasizing proactive compliance, while institutions prioritize risk mitigation and market integrity when selecting execution platforms.

Expanding Market Reach

TC: Is demand primarily originating from the United States?

AM: We are experiencing demand across Asia and Europe, and are planning to establish offices in those regions to better serve our international clients.

TC: Does Goldman Sachs utilize your services?

AM: While I cannot comment on specific client relationships, it’s clear that all major banks are actively exploring cryptocurrency exposure. Achieving this safely and compliantly requires specialized solutions.

We currently support crypto-native exchanges, broker-dealers, and liquidity providers. However, we are also seeing increasing interest from emerging sectors like NFT platforms, stablecoin issuers, lending platforms, and decentralized protocols, all seeking to protect their users and ensure trading integrity.

Technology and Data Analysis

TC: How does your subscription service function, and who is responsible for the underlying technology?

AM: We analyze private data provided by our clients, incorporating it into our detection models. The resulting insights and alerts are then presented on a user-friendly dashboard.

Our engineering team comprises fintech experts from leading financial institutions like Goldman Sachs, Morgan Stanley, and Citi, bringing extensive experience in large-scale trading systems. We also collaborate with data scientists from Israel specializing in anomaly detection, applying their expertise to financial crime prevention.

Evolving Crypto Crime Landscape

TC: What types of criminal activity are you observing?

AM: Initially, manipulation was often more overt, involving wash trading or pump-and-dump schemes. Today, we are encountering increasingly sophisticated tactics that exploit vulnerabilities across multiple execution platforms. Our system identifies anomalies that legacy, rule-based systems would likely miss.

TC: Could you provide more detail on these new anomalies?

AM: We are seeing a rise in account extraction attacks, where malicious actors gain unauthorized access to accounts and drain funds through sophisticated trading maneuvers. We leverage account deviation and profiling to alert exchanges and financial institutions to potential threats.

Our focus is on detection and prevention, rather than post-incident analysis. We can identify manipulative behavior without requiring personally identifiable information, relying instead on trading attributes. For example, if a pump-and-dump scheme is detected on a coin pair in Hong Kong, we can proactively warn our other clients to prepare for potential spillover effects.

Limitations and Future Outlook

TC: Can your system actively halt suspicious activity on an exchange?

AM: We function as a detection and alerting system, akin to bomb-sniffing dogs. We identify potential manipulation, but the ultimate decision to intervene rests with the financial institution.

Image caption: From left to right, seated are CTO Praveen Kumar and CEO Asaf Meir. Standing is COO Chen Arad.