For a year now, Solidus has been working to tackle cryptoasset trading manipulation. Here, I offer a brief overview of the landscape, and present the principles guiding our vision for safer crypto markets
That’s what two journalists, both from major financial news outlets, recently asked me. I must admit — I wasn’t immediately sure how to answer. Cryptoassets are a budding industry rooted in the nascent blockchain technology. Naturally, it is facing many fundamental challenges. How do you pick one that’s the biggest?
It took me back to the early days of Solidus Labs, about a year ago. My team and I left Goldman Sachs knowing we wanted to create value by bridging traditional finance and the new digital economy. We were passionate about blockchain’s ability to transform financial services, but when we looked around we saw a deeply fragmented ecosystem. When we tried to sketch a trading workflow for blockchain-based assets, 75% of the steps were missing or severely lacking.
The task of filling the gaps seemed daunting. Thankfully, we were inspired by the many ambitious trail-blazers who were already working day and night to build both infrastructure and services advancing a complete and mature blockchain ecosystem. We dived right in, and thinking about the year since and its conversations, research, ideation and execution, I realized I have a good answer for the two journalists:  It’s not about the biggest problem — there are simply too many major challenges for cryptoasset trading. The real question is what are the biggest problems we, as an industry, can actually do something about today.
For us at Solidus, the answer crypto-native trade surveillance: Tools tailored specifically for blockchain-based financial services, to combat the vast amounts of manipulation in crypto markets. There are numerous unknowns: Regulatory uncertainty, technological challenges, public perception and more. However,  instituting surveillance into their systems is something every broker dealer, market maker, hedge fund or exchange can do as soon as tomorrow, regardless of the unknowns, to create an ecosystem safer from abuse and manipulation.
There’s a handful of companies and organizations leading the discussion on trade surveillance to tackle crypto market manipulation. As one of them, we had the pleasure of engaging with multiple market participants in order to create a robust, inclusive and safe trading ecosystem for digital assets.
Those market participants include newly formed crypto companies and traditional wall-street firms whose leadership is set on adding cryptographic digital assets to their portfolio. Two critical categories of companies are emerging: Infrastructure companies, and service companies.
Among infrastructure companies, you’ll find those looking to deliver instant off-chain payments confirmation, crypto-based custodians, tokenized securities, debt and swap issuance, OTC (over-the-counter) markets, distributed networks of oracles, and last but not least decentralized exchanges and centralized exchanges exercising different forms of on/off chain order-books. This list, though it’s not short, includes only a few of the space’s up-and-coming vertices.
Simultaneously, service companies are on the rise, offering market making services, brokerage of non-deliverable forwards, ETFs, derivatives, futures, loans, swaps and other ways clients can engage with, and gain value from, blockchain-based assets.
 To create a comprehensive and safe trading environment, services and infrastructure companies in the world of cryptoassets must work together.
The common denominator for all of these companies is that they all face the challenge of market manipulation.  Manipulation is not a possibility, it’s a probability, maybe even a certainty.
It’s easy to understand why:  The more complex the system, the more opportunities exist for sophisticated malicious actors to try and take advantage of others. In a trading system where, for example, smart contract-controlled oracles determine dividend payoffs for tokenized securities, a strong market surveillance system is absolutely acute to ensuring fair play.
 The bottom line is that the opportunity for manipulation in cryptoasset trading is enormous, and detecting it requires different technology, knowledge and thinking than traditional markets. Keeping that in mind, Solidus Labs, since its founding, spent considerable time and resources preparing for the future of digital asset trading.
We’re not thinking just about  what manipulation means today, but are also laying the groundwork for detecting crypto manipulation as it will manifest in the near, and far, future. From block-level manipulation, through smart contracts fraud to abuse of e-wallets, oracles, and other trading- facilitation frameworks which are all promising, but increase the potential for fraud. We are developing solutions for problems that, in some cases, have yet to take place, but will surely do. Admittedly, this is one of the biggest — and most fascinating — challenge in our work.
To be clear, Solidus Labs wouldn’t be able to be where it is today without its partners, advisors, clients, and other supporters. We’re advocating for higher standards of trading in a space that’s currently in disarray, and it’s not a one-man, nor a one-company, job. It’s the collaborative and creative blockchain and crypto community that constantly pushes us to continue working on our modest contribution — a trade surveillance infrastructure for cryptoassets. We’re proud to be members of a community that is aware of the big challenges it’s facing, but rather than being daunted, focuses first on the problems that can be solved right now.
Financial Times recently interviewed us about the state of crypto market manipulation
Solidus’ Guidelines for the future of cryptoasset trade surveillance:
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.
Coindesk‘s Institutional Crypto expert Noelle Acheson hosted Solidus Founder & CEO Asaf Meir for an hour-long discussion of the unique compliance and market manipulation challenges.