PayPal Joins $4.2M Round for Crypto Banking Compliance Startup

Reddit founder Alexis Ohanian’s Initialized Capital, Blockchain Capital and PayPal Ventures are backing TRM Labs in its effort to help financial firms manage crypto risk.

Nov 19, 2019 at 1:00 p.m. UTC
Updated Sep 13, 2021 at 11:43 a.m. UTC

Financial institutions know how to calculate the risk of serving traditional businesses. But for firms touching cryptocurrency, the math is still fuzzy. The assumption of added regulatory hurdles and money-laundering fears have led to a widespread problem: Your average bank would rather just not deal with it.

Addressing those concerns with clear-eyed data is how compliance startup TRM Labs wants to accelerate the institutional embrace of crypto. And that’s why a group of investors are backing the blockchain analytics firm to the tune of $4.2 million in new funding.

“Many might consider this the unsexy plumbing of the financial system but it’s what allows [crypto adoption] to thrive,” TRM Labs co-founder and CEO Esteban Castaño said in an interview. “We’re helping financial institutions to think through crypto’s potential as well as to mitigate any of the associated risks.”

The slate of investors includes Reddit founder Alexis Ohanian’s Initialized Capital, SF stalwart Blockchain Capital and a new strategic partner, PayPal Ventures. The influx of capital brings TRM’s total funding to $5.9 million after the startup emerged out of Y Combinator earlier this year.

It’s only the second blockchain-related investment disclosed by PayPal Ventures (the first was in April 2019) and comes just a month after PayPal itself withdrew from the Facebook-led Libra Association.

Chainalysis, but for banks

While competing firms like Chainalysis and Elliptic are known for aiding law enforcement, TRM Labs is focused solely on finance.

“Financial institutions use TRM to risk-score their cryptocurrency-related transactions, customers, or partnerships, helping them to simplify customer due diligence and meet regulatory requirements,” the company said in a statement.

That means the startup scours over a dozen blockchains, analyzing billions of transactions for signs of fraud and money-laundering.

The heightened interest from major players in traditional finance comes from a dawning realization that exposure to crypto is now “inevitable,” Castaño said.

“This new world is coming,” he said. “We’re going to help the existing financial system adapt to this new world so they can effectively engage with it.”

That doesn’t mean TRM is alone. Chainalysis, for one, already serves the finance sector, apparently to mixed reviews.

“The existing providers are trying to tailor products to financial institutions, and we’re just finding they’re not doing a good job of that,” Blockchain Capital’s Spencer Bogart told CoinDesk.

Regardless, he said, getting those institutions comfortable with crypto requires conforming to existing rules and regulations around tracking the provenance of customer funds.

“Every time we’re talking to a financial institution, number one or two on their list of concerns is compliance and risk management,” Bogart said.

TRM Labs is a team of 20, according to Castaño. The San Francisco-based company says it will use the new funding for product development, hiring and expanding to new geographies.

Image: TRM Labs co-founders Esteban Castaño and Rahul Raina, courtesy of TRM Labs

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