Read All About It: Solidus Labs’ Team of Former Goldman Sachs Engineers Leads the Charge on Crypto Market Surveillance

FinTech Sandbox
Jun 5, 2020 · 7 min read

While we may not know exactly how FinTech will impact our future, we have an idea as to who will be leading the charge. Our latest blog series, “The New Faces of FinTech”, spotlights some of the emerging leaders in the FinTech world to get their thoughts on what the future of the industry will look like. Their origin stories are different, their paths to entrepreneurship are unique, but their impacts on their respective industries are significant. No one truly knows what the future of FinTech holds, but these industry leaders may have an inkling as to what we can expect.

Up next in The New Faces of FinTech series is an interview with the COO of Solidus Labs, Chen Arad. Solidus Labs offers a platform that enables firms to detect, monitor, investigate and prevent market manipulation and risk in digital asset trading, apply for licensing and achieve regulatory compliance.

Working for many years as a journalist, Chen has always had a passion for taking important and complex issues and transforming them into compelling narratives. So when he entered the world of digital asset trading, he knew his storytelling skills would serve him well working with clients. As a relatively new class within financial trading, digital asset markets are rife with market manipulation and abuse. Seeing a lack of effective surveillance and compliance in the world of digital assets, evident by the SEC’s repeated rejections of Bitcoin-ETF applications due to market manipulation concerns, led the founding team to create a platform that was tailored specifically for digital asset firms and their needs. Solidus Labs has been successfully helping their clients not only understand digital market manipulation, but actively work to detect, and report it to regulators.

This is part 9 in the 2020 edition of our “The New Faces of FinTech” series created in partnership with growth marketing agency Ideometry. Thank you to all of our interviewees for participating in this series, and thank you for reading!

Tell us a bit about Solidus Labs.

Chen: Solidus Labs helps grow digital asset businesses through tailored compliance and market surveillance solutions. Essentially, that means we help companies detect, investigate, report, and monitor for market manipulations and abuse in digital assets trading, in order to achieve licensing and regulatory compliance, and protect their users. We also provide our solution to regulators, who are concerned about whole-market risk levels and cross-market manipulation, a challenge unique to crypto.

It’s important to understand that because digital assets are different in so many ways, there are many new forms of manipulation that are crypto-specific. An important part of what we do is detecting these new forms of manipulation, typologizing them and helping regulators and clients understand and prevent them. That’s why machine learning is very important when you deal with this new asset class — you are able to not only look for forms of market abuse you already know, but also for new forms of manipulation that are unique for this asset class or as we call them — the unknown unknowns.

Our solution harnesses existing rule-based methods to detect manipulation, and augments them using sophisticated statistical analysis, or as the buzzword goes, machine learning, as well as other advanced technologies. We work with digital asset exchanges, broker dealers, and regulatory agencies all over the world, and are excited to have a growing client base that is increasingly seeing the benefits of products like ours — safer markets for users, the ability to achieve regulatory compliance and licensing and increased operational efficiency among them. The idea is to streamline the compliance process, letting the clients focus their time and effort on their core business — running an exchange or other crypto service — rather than on back-office compliance.

Our solutions and services are specifically developed for digital asset trading, but are also relevant for traditional financial institutions, many of whom are considering entering the crypto market. At the moment, we’re primarily focused on digital assets, but we believe our technology could help surveil and improve the integrity of trading in other forms of assets in the future, and generally — make compliance better.

What happens when a market manipulation event takes place, and how does one realize it’s occurring?

Chen: Whenever someone is trading assets, there are opportunities for manipulation. This is true not just with digital assets, but for the traditional stock market as well. Manipulation arises when someone is maliciously trying to affect the prices or volumes of assets in order to make a profit on the account of other people. However, since digital assets are a relatively new form of assets, the proper technology isn’t in place to help monitor — and stymie — digital asset manipulation. Digital assets rely on cutting edge technology, which introduces a new market structure, new trading workflows and new data structures all of which are subject to constantly evolving regulation. Regulators and traders are still adjusting to this space, and we’re working to help ensure digital asset trading can be done safely and with integrity.

Detecting concerns in the world of digital assets is more complex than detecting manipulation in the traditional market. There are traditional legacy systems that act as satisfactory security measures for traditional assets, but they’re just not suitable when dealing with digital assets. The result is users being manipulated which eventually translates to tens of billions of dollars, at least, of funds stolen from legitimate traders in digital asset markets today. In order to see large institutions tipping their toes in the market, they require exchanges to abide by and enforce measures to catch malicious trading activities.

What does Solidus Labs hope to achieve both in the near and distant future?

Chen: We came into Solidus Labs with a pretty simple premise, which was that digital assets are a fundamentally different class of assets. In order to effectively monitor and regulate them and create fair markets, we knew we needed to develop tailored tools for this asset class. That’s what our initial focus was on, creating a tool that’s crypto native and was uniquely designed for this space.

Once we started to sit down with clients and pitch our product, they understood why it’s so important. They were excited. At the same time, those early client meetings also helped us learn that the challenge wasn’t just detecting manipulation, but also generally maintaining compliance more cost-efficiently, with more precision and convenience.

Our core capability is helping our clients detect, investigate, and report market manipulation with cutting edge precision. But as we increasingly delved into the problems with this space, we realized that there were many other issues with compliance workflows from a user’s perspective, including consolidation, interconnectivity, collaboration and other workflow challenges.

The solution we offer today, in addition to the tailored crypto market surveillance capability, allows clients to monitor their risk on a unified platform versus using multiple systems to track varying risks. This is very important in terms of cutting the operational costs of compliance and creating a much more effective risk monitoring system. We are laser-focused on improving the integrity of the digital asset market and making compliance easier for crypto firms. However, the fundamental capability to detect trading anomalies more effectively with fewer false positives and less manual analysis is something that we believe will be relevant for all asset classes, not just digital assets.

You have an extensive background as a journalist, so how did that work experience lead you to pursuing a career in FinTech?

Chen: I knew that entrepreneurship is a great opportunity to make a difference and work with amazing people, in this case my CEO Asaf Meir and my CTO Praveen Kumar, who are both not just good friends, but also professional mentors for me. What I really liked about being a journalist was taking very complex issues, studying them, and turning them into compelling stories. Interestingly, creating compelling stories is still a big part of my job here at Solidus Labs, just in a different context. I quickly learned that crypto, finance, compliance and regulation are all extremely complex. But understanding these complex fields and presenting them to people from various disciplines in a compelling way is something I’ve come to love.

How has the COVID-19 outbreak impacted the business and the day-to-day workflows of Solidus Labs?

Chen: This huge wave of uncertainty that came with COVID-19 obviously had an impact on our company. Having to stop and assess where how this affects our employees and clients, and figure out how to navigate through all of this, took a moment. However, being a FinTech company, we were able to adapt quickly, and were very well-equipped to work from home. In fact, our team has been more productive since we started working from home. My colleagues and I joke that there will definitely be a lot of Harvard Business Review case studies written about the benefits of working from home after the crisis.

COVID created market volatility, volumes are up, and manipulation is skyrocketing, our team is hard at work supporting existing clients and onboarding new clients globally .

What’s it been like being part of the FinTech Sandbox community?

Chen: FinTech Sandbox has been great. The data provide by their top-notch data partners is extremely helpful. The mentorship and the community that comes with being a part of FinTech Sandbox is also great. The fact that we can reach out to any FinTech Sandbox entrepreneurs and pick their brains for advice is a huge perk. We’re thankful to FinTech Sandbox for introducing us to a lot of inspiring entrepreneurs, and are proud members of the program.

We’re thrilled to feature some of the incredible companies that are currently participating in the FinTech Sandbox program. If you’d like to connect and hear from our interviewees in person, be sure to check them out at the upcoming Demo Day, which has been postponed until October. It’s a tremendous event that represents a diverse, global group of innovators in FinTech and gives others the chance to see our portfolio companies live and up close.

Ideometry is a Boston-based full-service marketing agency serving a global client base. With a full suite of creative, development, and strategic services, Ideometry helps growth-stage startups and Fortune 500 companies alike get the business results they’re looking for. If you’re doing something interesting, we’d love to hear from you. Get in touch with us at ideometry.com or email hello@ideometry.com.

Collision

All things product development and data in finance. Powered by FinTech Sandbox, Boston based non-profit breaking down barriers to entry for FinTech entrepreneurs by providing free access to quality data.

FinTech Sandbox

Written by

Boston-based nonprofit accelerating innovation and collaboration in finance.

Collision

All things product development and data in finance. Powered by FinTech Sandbox, Boston based non-profit breaking down barriers to entry for FinTech entrepreneurs by providing free access to quality data.

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