FRST Blockchain Data Technology Can Identify Inflated Trading Volumes on Exchanges
FRST, A Chicago Based Blockchain Data Provider Implements Technology To Help Trading Firms Identify Inflated Volumes
FRST, founded in 2017 by Patrick Gorrell and Jonas Frost, raised $3.4 million in a seed funding round, led by Vestigo Ventures and CMT Digital, the startup announced Tuesday. Other participants in the round include Akuna Capital and principals from Premier Asset Management and Oak Ridge Investments.
It is an enterprise-grade, trading-floor-ready technology suite that allows professional traders to perceive, categorize and act upon transactions involving digital assets. The company's technology rapidly identifies digital currency token trades before they are moved from a wallet to an external party or exchange, providing important insights for firms trading cryptocurrencies.
Wash trading, the creation of artificial trading activity, is illegal in some jurisdictions, including the U.S. And it impacts more than 67% of the cryptocurrency market. In some cases, immature token projects pay exchanges to get listed. And there are some firms selling services to token teams and exchanges to inflate volumes.
The CEO of FRST, Karl Muth, says the lack of tools to identify this type of activity has kept some trading firms from diving into the nascent market.
“There are a lot of companies out there who say they would love to move a foreign exchange guy to build a new crypto desk, but they are generally unsatisfied with the tools.”
Through a desktop application, the firm offers trading solutions to answer portfolio-related questions or backtest, which allows client trading firms to conclude whether a given strategy would have outperformed the market over a certain historical time-period to test the strategy’s efficacy.
The firm’s tools tap into more granular data which can help traders distinguish between volumes that are inflated by wash trading and those that are not.
FRST’s data has identified a specific type of wash trading in which exchanges, or other entities, send coins back and forth between wallets to inflate the volumes on a given exchange venue or for a given token. Traders using FRST’s platform can suppress these types of volumes because it identifies wallets that are related to each other.
“FRST’s technology to identify which wallets are related — and distinguish between movements of tokens among wallets that are closely-related and unrelated, traders can set rules and build models that excludes related-party activity and more accurately portray the amount of market activity in a given token.”
To be sure, Muth says some trading shops have been able to replicate some of these features. Notably, firms such as DRW and DV Trading in Chicago, have been trading in crypto markets well-before the bitcoin mania of 2017.
Still, FRST has a sweet-spot in the middle-market, especially among firms that aren’t necessarily trading crypto.