Solidus Labs says the solution - and a shared-surveillance consortium the firm is working with partners to establish - address one of digital assets’ biggest regulatory challenges - the fact they are traded simultaneously across multiple exchanges, and can therefore be manipulated in new and different ways compared to more traditional assets
New York, New York -- November 17, 2020 — Crypto-native risk monitoring firm Solidus Labs announced today its solution for shared-surveillance of crypto markets. The solution is designed to detect price and volume manipulation taking place across various digital asset exchanges simultaneously. Also announced today, is the work towards a multi-exchange data consortium meant to share information and root out bad actors in an effort to bring even more transparency to digital asset markets and enable regulated growth.
The company and its partners see these efforts as a path to addressing major concerns raised by regulators globally regarding market manipulation. Such concerns are among the key reasons the U.S. Securities and Exchange Commission has consistently rejected a number of Bitcoin-ETF applications since 2017. Through a combination of this solution, and the proposed consortium, Solidus Labs is suggesting a path forward.
“This service and plan came in response to inquiries from our clients, including digital and crypto asset firms, and regulators around the world,” says Asaf Meir, Chief Executive Officer at Solidus Labs. “They asked whether the solution they used individually can also address the industry-level crypto-specific challenge of cross-market manipulation, and we have worked with them to create a holistic service to meet those needs.”
Crypto assets including Bitcoin and Ethereum are inherently not native to any single exchange or jurisdiction, they are traded freely in numerous venues with varying levels of regulation and transparency. The S.E.C. repeatedly mentioned these concerns in its rejection of numerous different rule-change proposals to date, which sought to enable Bitcoin ETF trading in regulated U.S. markets.
Bitcoin ETF applications, in practice, are rule-change requests, asking the SEC to approve Bitcoin as a valid underlying asset from which the ETF’s value will be derived. Such an approval is highly anticipated, and deemed critical for the industry’s growth. Once approved, they will allow institutional and retail investors exposure to crypto assets through a traditional and fully regulated channel, mitigating risk and potentially ushering a flow of new institutional capital into the space.
Since 2017, the U.S. digital asset industry has been able to make some progress towards an ETF. In a detailed report submitted alongside its application, Bitwise, a California-based cryptocurrency index and beta fund provider, has argued that a U.S. Bitcoin-ETF is viable but also acknowledged that most crypto trading volume is indeed not surveilled and suggested that as much as 95 percent of known global volumes are potentially manipulative. However, the firm continued to argue that five percent of trading is concentrated in fully regulated U.S. markets, meaning that a Bitcoin-ETF priced based on U.S. markets can be trusted.
“It’s important to remember that, while we solved the technical hurdle, another major challenge here is for various crypto exchanges to not only work together, but share data,” added Meir. “We completely understand the sensitivities, and have been working with the many interested exchanges to establish a consortia.”
The system securely collects trading data from various parties without risk of mutual exposure. The data is then hashed, obfuscated and anonymized before leaving each party’s system, to satisfy privacy and data security concerns, before being assembled in a repository adhering to GDPR and other common privacy protocols.
Solidus Labs’ software then employs its tailored crypto-native algorithms to analyze the data for manipulative cross-market abuse like wash-trading, pump and dump or layering, as well as general suspicious trends and anomalies unique to crypto trading. Results are surfaced through an intuitive dashboard and based on governance requirements dictated by the participating parties - meaning that the parties can set their own policies pertaining to resolution and escalation workflows, based on local jurisdictions and in-house mandated compliance strategies. The company says the solution can work in real time.
Solidus Labs’ sees at least three applications for the solution: As a service for regulators overseeing multiple crypto markets; as a service to consortia formed by crypto exchanges; and as the basis for global standards for data integrity and risk monitoring.
More information will be shared on this broad coalition in the coming weeks and months To learn more about cross-exchange surveillance, and how it can help usher in a Bitcoin ETF, please visit www.soliduslabs.com.
All the crypto news compliance professionals need to know. This month's highlights: SEC Chairman Jay Clayton again calls for better market surveillance and reduced manipulation before the agency can approve a crypto-ETF; A study by The Block raises concerns that 86% of volume in 48 exchanges is potentially wash trading; 94% of surveyed US, UK and Canadian endowment funds are actively engaged with crypto investments
Keynoted by SEC Commissioner Hester M. Peirce and featuring speakers from Coinbase, Gemini, Circle, GDF, Tagomi, ErisX and the Chamber of Digital Commerce among others.
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