- ByStartupStory | September 9, 2023
After the collapse of FTX, a cryptocurrency exchange, many traders are seeking decentralized and non-custodial alternatives to execute orders and store their assets securely. This has led to increased interest in decentralized crypto exchanges (DEXs) like Brine Fi, even as traditional venture capitalists remain cautious about the digital asset industry.
Brine Fi has announced a successful Series A funding round, raising $16.5 million at a post-money valuation of $100 million. Investors are showing optimism toward this new order book-based DEX, which launched its fully operational network (“mainnet”) just weeks ago and has already achieved $500 million in trading volume, as reported by Starkware, the Ethereum scaling solution powering Brine.
DEXs, in contrast to centralized exchanges (CEXs) like FTX, Binance, and Coinbase, conduct transactions entirely on blockchains. This offers traders full custody over their assets and potential privacy advantages since CEXs typically require KYC (know-your-customer) verification with local regulators, while DEXs are less regulated due to their lack of a central intermediary.
“While they are the safest way to trade, many traders opted for a CEX to counter higher trading fees on DEXs, price slippage, transaction fees ($5-$25 per transaction), liquidity issues, the absence of an order book, transaction delays and an inability to provide privacy on orders causing front-running attacks. All things that can impact profit margins and substantially increase the uncertainty of specific trades,” said Shaaran Lakshminarayanan, Brine Fi co-founder, in a written response to TechCrunch.
“Keeping all these points in mind, we’ve built Brine Fi to let traders experience the best of both worlds and get access to the merits of a DEX and a CEX at the same place. Moreover, high volume traders and institutions don’t need to worry about front-running attacks anymore as we provide complete privacy on orders by using zkP (Zero Knowledge Proofs) technology which is backed by Starkware.”
The Series A funding round, led by Pantera Capital, included participation from Elevation Capital, Starkware Ltd., Spartan Capital, Goodwater Capital, Upsparks Ventures, Protofund Ventures, and several angel investors.
Brine Fi is targeting both retail and institutional traders, with plans to expand its services. During its testing phase from February to June 2023, the platform processed over 4 million transactions and achieved a trading volume of more than $1.6 billion.
“Over the past month, Brine has been able to execute orders in milliseconds while remaining fully non-custodial. It has helped us onboard some of the largest hedge funds, exchanges, and high-frequency traders in the world by helping them diversify their asset allocation and mitigate counterparty risks,” said Lakshminarayanan, who co-founded Brine with the firm’s CTO Bhavesh Praveen (CTO) and CDO Ritumbhara Bhatnagar.
While DEXs offer advantages like privacy and asset custody, they also face potential regulatory challenges, as they are not subject to KYC and AML regulations. Lakshminarayanan acknowledged the need for regulation in the DEX space, as unregulated use could potentially lead to financial crimes. Brine Fi is already taking steps to comply with future regulations, using providers like Chainalysis and Merkle Science to enhance security measures.
In a landscape where cryptocurrencies and blockchain technologies are rapidly evolving, DEXs like Brine Fi are offering traders more options and security features as they navigate the changing regulatory environment.
“DEXs present an opportunity for unscrupulous bad actors to take advantage of the industry for money laundering purposes as well as other financial crimes. Because individual users don’t need to verify their identity or the source of their funds when they create an account with a decentralized exchange, it’s much easier for them to slip under the radar compared to traditional financial institutions. For this reason, many industry experts believe that it’s only a matter of time before decentralized exchanges find themselves subject to such regulations,” said Lakshminarayanan.
“With this in mind, it would be prudent for decentralized exchanges to recognize the potential for regulation and begin generating a framework for KYC and AML compliance in the event that it becomes required. At Brine we are already using providers such as Chainalysis and Merkle Science to ensure that we are taking the best measures to protect ourselves from such bad vectors,” he added
Follow Startup Story