Solidus Raises $3 Million in Seed Financing to Tackle Digital Asset Market Manipulation

Solidus Labs, provider of a machine learning-powered trade surveillance
platform tailored for digital assets, secured a $3 million seed round of
financing led by Hanaco
Ventures. Additional participants in the round include Global
Founders Capital, as well as angel investors and Wall Street
veterans David Krell and Norman Sorensen. With the proceeds Solidus’
team of former Goldman Sachs engineers is set to address a major
challenge preventing greater institutional and mainstream adoption of
digital assets - trade manipulation and market integrity.

Solidus’ web-based platform is already deployed with diverse clients
including exchanges, broker-dealers, hedge funds and market makers in
Europe, the United States and Israel. The funding round will be used to
continue expanding the company’s engineering and machine learning teams,
as well as sales, marketing and customer success operations. Solidus is
accommodating growing demand from digital asset firms, as those strive
to satisfy intensifying regulatory oversight and high compliance
standards of traditional financial institutions.

A December study conducted by the Blockchain
Transparency Institute estimated that over 80% of top 25 Bitcoin
pairs (by volume) listed on CoinMarketCap
are driven by manipulation. Similarly, in August, the Blockchain
Transparency Institute estimated that approximately $6
billion dollars worth of daily digital asset trading volume is fake.

Accordingly, both regulators and market leaders are seeking effective
ways to strengthen market integrity. In November, U.S. Securities and
Exchange Commission Chairman Jay Clayton stated the
agency wishes to see effective market surveillance solutions to
become comfortable approving Bitcoin ETFs. In a recent interview,
Cameron and Tyler Winklevoss, owners of leading exchange Gemini Trust
Company, underlined “more
market surveillance… against manipulative behavior” as a strategic
priority for regulators and therefore the industry at large.

In the United States, the SEC
and FINRA
have indicated that digital assets will be an inspection priority in
2019 and Congress
is currently reviewing a bill meant to combat digital asset market
manipulation. Towards the end of 2018 a number of American digital asset
firms were indicted for fraud and reports suggest hundreds of firms in
the space are being investigated. According to Gibson and Dunn, around
$2,000,000 in fines and disgorgement fees were ruled against digital
asset firms last year. In Asia, a number of countries are establishing digital
asset exchange licensing frameworks that will likely include
anti-manipulation requirements. The Korean
justice system recently set a precedent by sentencing the owners of
a digital asset exchange to jail time for submitting manipulated volume
reports.

Though some digital asset firms deploy traditional surveillance
solutions, their ETF applications were nonetheless denied by the SEC
amid unresolved manipulation concerns, as well as other issues. Solidus’
Founder and CEO Asaf Meir explains that, “digital assets offer capital
markets enormous value but also add numerous new layers of complexity to
trading workflows. More complexity, in this case, means different kinds
of data, operational needs, new manipulation schemes and evolving
regulation that legacy surveillance systems are unable to sufficiently
accommodate for.”

To address this challenge, Meir highlights Solidus’ utilization of
machine learning detection models, reducing false positive alerts by at
least 30%. Other benefits include advanced case management workflows,
extensive customizability, back-testing, investigative tools and
integrated reg-reporting features. “The ML component is key since there
are so many unknowns - what manipulation will look like in two, five,
and ten years can be completely different from what we know in
traditional trading and even from today’s digital asset trading. Our
machine learning-powered surveillance system is able to continuously
learn as new patterns emerge and reveal new manipulation schemes or
openings for manipulation. It enables responding as things happen rather
than retroactively”

Lior Prosor, General Partner at Hanaco Ventures which is responsible for
leading the seed round, remarks, “Although it might sound cliche, the
digital asset ecosystem is in dire need of good ‘picks and shovels’
rather than more end applications. We believe regulation and security
are the ultimate ‘enablers’ in this space, and that regulating a market
powered by groundbreaking technology requires groundbreaking compliance
infrastructure. Solidus has the right Wall Street experience and digital
assets vision to help bridge traditional finance and the new digital
economy.”

About Solidus Labs

Founded by former Goldman Sachs FinTech engineers, Solidus Labs’ mission
is to bridge traditional finance and the new digital economy through
compliance infrastructure tailored for digital assets. The company
envisions a healthy digital asset ecosystem where innovators and
regulators work together, harnessing the power of blockchain to benefit
consumers, markets, economies and societies.

About Hanaco Ventures

Hanaco Ventures is an early stage $100m venture fund based in New York
and Tel Aviv, focused on companies founded by Israeli entrepreneurs
around the world. Some of Hanaco’s General Partners’ previous
investments include Via Transportation, Yotpo, Fundbox, Lemonade
Insurance, Selina Hostels, Cyvera and more.

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