Crypto Market Protection: A Conversation with Kathy Kraninger, the Vice President of Regulatory Affairs at Solidus Labs

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CFTE met Kathy Kraninger, the Vice President of Regulatory Affairs at Solidus Labs, from Point Zero Forum 2023 (PZF) at the end of June in Zurich. We got the chance to interview Kathy about Solidus Labs’ ‘Halo’ Project and the measures for safe trading in the crypto market. 

Solidus Labs is a risk-monitoring crypto native software company. Supporting participants of the digital asset market, exchanges, broker-dealers, market makers, and regulators. It is also a combination of RegTech and SupTech together in terms of how they oversee these markets. 

Can you introduce what Solidus Labs does and what is the ongoing project the company has?

K: The company initially focused on trading behaviour and expertise, identifying unusual trading and manipulation happening in the market. As we observed the rise of Decentralised Finance (DeFi) in the crypto markets a couple of years ago, we started looking at acquisitions to bring in that expertise, building on our knowledge in both Centralised Finance (CeFi) and Traditional Finance Trading. 

While looking into DeFi, we found manipulation, hacks and scams in the crypto market that worked differently from traditional structures. So we came across tokensniffer.com, a platform that is designed to detect malicious code to retail investors and consumers within smart contracts by inputting the contract address, and acquired them.

“The challenge is how do we leverage it to the next level, where we can stop people from launching tokens that are scams or rug pulls.”

Kathy Kraninger, Vice President of Regulatory Affair at Solidus Labs

How does Solidus Lab’s project ‘Halo’ work? Are there any challenges and opportunities you see in the project?

K: Our project ‘Halo’ is our product platform – the integration of our trade surveillance, transaction monitoring, and features from tokensniffer.com, including various feeds and insights facilitating users to be vigilant in the ecosystem. Tokensniffer is a website where you can search for smart contract addresses. It constantly scans all the Ethereum-based blockchains and identifies every ongoing new token that is created and provides it to the ecosystem and retail consumers. 

The challenge, however, is how do we leverage it to the next level, where we can stop people from launching tokens that are scams or rug pulls which only allow you to buy and not to sell. Scam tokens can drain liquidity from individual accounts by flushing the tokens into the system and other ways the malicious code can manifest itself. 

Are there any ongoing collaborations and partnership goals with “TokenSniffer”?

K: We are bringing our system to scale by collaborating with exchanges and sharing the identified scammer’s details warning the users. Instead of individuals manually checking for each address, we decided to turn this into a feed that enables exchanges to provide scammer’s information to their customers. By being more proactive in warning exchanges at scale, it prevents the liquidity from going into the pools which reduces the scammer’s incentives to create the token in the first place. This will protect customers more effectively than the retail interface where users query each token individually for legitimacy. 

In terms of the evolution of the project, what is its status in the crypto market?

K: Definitely, there is always room for improvement. As the crypto market is evolving, new types of scams and manipulations are emerging at the same time. So there are still a lot of people sceptical about tokens and the crypto market. But the ones we present on tokensniffer.com are direct and clear with the code and information pointed out to the users. 

We are also looking to further develop the system to cater to new methods of scams and manipulation. For example, now we are looking into how we can identify serial scammers and notify market participants and investors about them. The decision on what to do with the serial scammer nevertheless still depends on the players or exchanges themselves.

Are there any emerging opportunities or challenges in the crypto market for the upcoming years?

K: It’s a larger question of addressing issues related to integrity, the challenge here is to meet the expectations of users who are used to traditional finance and a direct channel of interaction free from scammers. So we need to obtain an advanced ecosystem to bridge the gap between traditional finance institutions who prioritise security and trust, and the technology professionals who focus on innovation and deployment.

Based on our blockchain projects map, what aspect does the Solidus ‘HALO’ project cover and what is its focus?

K: That is a truly interesting question, I think it straddles infrastructure, compliance and risk. That’s pretty clear in terms of the project, but in terms of the financial sectors, I guess you would say clearly, the capital markets and exchanges are our bread and butter. 

But you also have a retail finance dimension, because that’s where we’re also looking to help directly with the front-end of tokensniffer.com. At the same time, there is also a regulator dimension that regulators are interested in, as they have the responsibility to address scams and protect consumers. Most importantly, we focus on consumer protection. Although the scale of scams may vary from small amounts, these amounts of money can be significant enough for the individual victims. 

What are some interesting projects, and areas you see in the US landscape?

K: I think it is the digital identity and credentialing issues, since part of my career is in the government sector, where I was in the National Security, Homeland Security space. Zero-knowledge proof provides an advanced way to establish and verify digital identity without revealing sensitive data compared to the current technology we are utilising. For example, when buying alcohol, it is only necessary to prove that someone is 21 or older, without disclosing their exact date of birth or other personal information. This ensures privacy and minimises data exposure, where only the necessary information to meet specific requirements is revealed. 

However, to adopt these projects we need to collaborate with the government and the private sector, prioritising public-private partnerships. Despite all these challenges with human and policy dimensions, I am excited to see what technology can provide in the future which also gets people to be excited and think about future potential new possibilities. 

Are there any insights you want to share about PZF 2023?

K: I think it is a fantastic forum, bringing together regulators, policymakers, technology innovators and traditional finance players. Since they introduced a new debate format, it has been interesting to be involved in these great debates, forcing us to take harder positions. I’m the kind of person who believes that there is not one silver bullet that is going to solve all our issues, but it is an amazing way to bring people together in person and be able to talk about these issues. 

Future Crypto Market: protection measures by Solidus Labs

In summary, Kathy Kraninger emphasised the importance of consumer protection and solutions of crypto technology in this rapidly evolving digital era. Solidus Labs, through strategic partnerships with tokensniffer.com and exchanges, to scale up its system and safeguard consumers against scams and fraudulent tokens for a more reliable and safer future crypto environment. 

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