Solidus Labs, a four-year-old, New York-based company that says its surveillance and risk-monitoring software can detect manipulation across cryptocurrency trading platforms, has raised $15 million in additional funding just six months after closing its Series A round with $20 million in funding. Liberty City Ventures led the newest tranche, joined by Exor Seeds and the crypto trading firm GSR.
We talked last week with firm co-founder and CEO Asaf Meir, who created the company with several former colleagues at Goldman Sachs, who worked with Meir on the firm's electronic trading desk and came to quickly appreciate that a lack of compliance tools would be a barrier to the adoption of cryptocurrencies by bigger financial institutions.
Unsurprisingly, Meir said that since announcing that round, the company has "been hammered with different inbound prospects." While earlier this year, Solidus was working mostly with exchanges, broker dealers, OTC desks, liquidity providers and regulators — anyone who is exposed to the risk of buying and selling digital assets -- that pool ballooned pretty fast subsequently.
More specifically, he said Solidus has been hearing from more players who have ties to -- and concerns about -- the world of DeFi, or decentralized finance, made up of all kinds of non-custodial financial products, including (in Meir's words) "automated market-making liquidity pools, lending networks, indexes, stable coins -- there is a lot of demand coming from different directions."
Why is this a new bucket of interest for Solidus Labs? Because it's full of risk. Meir cites "rug pulls" and "sandwich attacks," front running and "flash loan attacks," and he observes that these are "just the tip of the iceberg." And while he declines to name Solidus's customers (which would reveal a lot about who is most concerned about this experimental space), he notes that if "DeFi doesn't address widespread concerns about market integrity and consumer protection, it will not be able to deliver on its promise of better financial opportunities."
Solidus isn't alone in trying to help its customers identify and anticipate fraud. After all, every financial market is a target, and cryptocurrency markets are in many ways more vulnerable because there are still comparatively few regulations governing them.
That chaos has led to the rise of Chainalysis, a seven-year-old company whose blockchain analysis software flags regulatory risks to cryptocurrency exchanges, government agencies and financial institutions and was valued by its investors at $4.2 billion earlier this year after closing its most recent round of funding.
Another startup that is now selling blockchain compliance and data analytics to government agencies, financial institutions, researchers and investors called Elementus is also picking up traction. The crypto forensic outfit announced $12 million in Series A funding last month.
Elliptic, an eight-year-old, London-based outfit that similarly promises customers that it can identify illicit activity on the Bitcoin blockchain and that provides its services to financial institutions and law enforcement agencies, has also benefited from the massive uptick in interest in crypto and other digital assets. Last month, it announced $60 million in new funding, including from SoftBank and Wells Fargo, a round that brought its total funding to roughly $100 million, per Crunchbase data.
There is seemingly plenty of room for growth for all, and indeed, Meir says that Solidus intends to operate as an independent company.
Still, if that changed, the outfit wouldn't be the first to sell to a deep-pocketed acquirer. Another rival in the space, six-year-old, Menlo Park, California-based CipherTrace, raised roughly $45 million from investors before deciding in early September to sell to Mastercard for undisclosed terms.