In 2018, struck by the Securities and Exchange Commission’s series of refusals to approve a bitcoin ETF, a group of Goldman Sachs engineers and cybersecurity specialists set out to find a way to address the SEC’s concerns over the lack of investor protection in the nascent industry. Two years later, they launched market surveillance and risk monitoring firm Solidus Labs.
Today, the New York-based outlet announces the closure of a $45 million Series B funding round. Revealed exclusively to Forbes, the investment was led by Liberty City Ventures and joined by Evolution Equity Partners, Declaration Partners, former U.S. Acting Comptroller of the Currency Brian Brooks and former CFTC Chairman Christopher Giancarlo.
“If you believe as an investor that crypto, DeFi, Web 3 are going to continue to grow, you need to build healthy pipelines for this industry. This is exactly what Solidus is doing,” says Asaf Meir, Solidus’ founder and CEO.
The company offers a suite of tools, which monitor more than 1 trillion trading events per day and parse blockchain data for over 50 different kinds of security threats, such as wash trading, spoof transactions and pump and dump schemes. With dozens of customers including regulators and crypto powerhouses like Fidelity Digital Assets, FTX.US and dYdX, the company estimates it is now protecting about 25 million market participants. Most recently, Solidus helped their clients avoid accepting deposits from the hackers who stole an estimated $625 million worth of cryptocurrency from the Ronin Network, an Ethereum-compatible blockchain tailored for the popular play-to-earn game Axie Infinity, by notifying them of anomalous trading behavior, according to Meir.
With new funds, Solidus hopes to accelerate the deployment of its intelligence tools and expand its research and development to address a fast-growing array of DeFi-specific use-cases. This may come especially handy as the cryptocurrency market is facing the crash of a prominent stablecoin TerraUST (UST) and its sister token LUNA, which lost 98% of its value yesterday.
Former CFTC Chairman Christopher Giancarlo, who also invested in Solidus’ $20 million Series A round last May and is acting as an informal advisor to the startup, notes it is precisely this approach that drew him to the firm. “They’re doing exactly what I was calling for when I was at the CFTC. I said it’s time for regulators to do what eBay, Facebook and Amazon do every day—analyze large pools of data as opposed to being so dependent on intermediaries and licensed parties,” he says. “Rather than being reactive, they need to be proactive, and they can do that if they become quantitative-based regulators. This notion of quantitative regulation is what Solidus will empower regulators to be able to do.”
While Solidus may come off as a latecomer to blockchain forensics, especially next to nearly decade-old outlets like Chainalysis and Elliptic, the company has secured formidable support from both former and current regulators. Among its other notable advisors are former SEC Commissioner Troy Paredes and new investor Brian Brooks, acting comptroller of the currency under President Trump who is now leading bitcoin miner Bitfury Group. In July 2021, Solidus hired the former director of the Consumer Financial Protection Bureau Kathy Kraninger as its VP of regulatory affairs. At the end of last year, the startup also hosted a conversation with SEC Chair Gary Gensler and former Chair Jay Clayton as part of the firm’s Digital Asset Compliance and Market Integrity (DACOM) Summit series.
Additionally, in February 2022, Solidus initiated the launch of the Crypto Market Integrity Coalition, which consists of 30 leading cryptocurrency firms including Coinbase, Robinhood and Gemini, to enhance cross-market surveillance and monitoring standards.
“Crypto is not only innovating the way financial markets work,” says Meir. “It’s also going to innovate the way regulation works, and there’s a need to create an open dialogue between market participants in pushing the standards forward.”