Meet The Company Streamlining Crypto Risk Compliance For Exchanges

This article is the first in our Fintech& series, leading up to Boston Fintech Week, which will take place from Sept. 27-29.

Meet Merkle Science: Artificial intelligence and machine learning are being implemented in industries across the board: sports, medicine, and now managing the risks associated with crypto crime for different funds and financial institutions, government agencies and businesses with crypto exposure.

Mriganka Pattnaik co-founded Merkle Science with Nirmal Aryath Koroth in 2018 to help improve the process of analyzing, predicting and mitigating crypto risk.

“I worked in investment banking, but very quickly moved to tech startups,” Pattnaik said. “I had worked for a crypto exchange called Luno in Singapore in 2016. It was very evident that crypto as a space was growing very fast, so building infrastructure had a lot of value.

"Second, I noticed that compliance was a big problem for these companies. For example, exchanges would get hacked and customers would lose their funds.”

Pattnaik knew that managing risk would be important in the crypto industry, but today it is even more pertinent with the recent weakness in the space and with certain projects failing. That is where Merkle Science comes in.

Merkle Science uses behavior-based transaction monitoring in addition to more traditional approaches to identify potentially fraudulent transactions and bad actors.

Merkle Science’s scientific approach to identifying fraud allows its clients to focus on other areas that bring value to end customers such as user interface, design and customer support without having to worry about fraud and compliance.

The Merkle Team: Pattnaik has built a strong team around him. His co-founder, Nirmal Aryath Koroth, has previous experience in the fintech space with PayPal. Additionally, the company’s lead investigator, Coby Moran, formerly worked for the FBI and Chief Revenue Officer Fernando Castellanos recently joined Merkle Science from e-commerce fraud prevention company, Forter.

“We tackle one particular piece which is the AML risk, and we use machine learning models and behavioral analytics to determine whether funds come from illicit sources or not,” Pattnaik said. “I know regulations are very controversial in the crypto space, but the way we see it, we are building infrastructure to allow crypto companies to scale faster, protect consumers and enable the safe and healthy growth of our industry.”

Regulations Are Coming: Whether the crypto exchange companies like it or not, countries around the world are implementing regulations to help protect crypto investors. This means that if an exchange is unable to prove that it is capable of preventing fraud on its platform, it may face legal troubles.

Access to data is critical to Merkle Science’s scientific approach to combating fraudulent activity. For example, the organization is a part of the nonprofit FinTech Sandbox’s Data Access Residency program, which helps emerging startups develop innovative technology and products by providing them with free access to data, which can have a significant impact not just on fintech, but many other industries as well.

The theme of data access and fintech extending into other industries will also be a major focus of the fifth-annual Boston Fintech Week, which is hosted by FinTech Sandbox.

In 2022, it’s clear that complying with oftentimes complex regulatory requirements is necessary throughout the crypto industry. Merkle Science is taking a next-generation approach to meeting this need, with a strong mission and stronger teams.

Photo: Chan2545 via Shutterstock