The founders of Blue, a local blockchain-based company that offers know-your-customer (KYC) and anti-money laundering (AML) products, recently completed a $3.2 million seed round.
The St. Petersburg startup operates out of ThriveDTSP, and co-founders Casper Yonel and Paul Thomas hope to make the world of decentralized finance safer for traders and institutions. Yonel said the capital would help grow Blue’s team and bring its core product to market in the coming months.
Decentralized finance (DeFi) is an umbrella term for financial applications that utilize blockchain technology and exclude traditional intermediaries, like brokerages or banks. CoinDesk, a national news site focused on digital currencies, recently highlighted Blue’s successful seed round.
The publication noted the founders’ timing is fortuitous, with interest in DeFi soaring following the collapse of FTX – once a leading cryptocurrency exchange – late last year. Yonel believes the centralized institution losing over $8 billion of its customers’ money “speaks to the need” for his platform’s services.
“The way I think about what we’re doing is that we’re blending the best of both worlds,” added Yonel. “We’re allowing traders to settle their trades on decentralized and permissionless blockchains while also complying with regulation.”
Blockchange Ventures and Fenbushi Capital led the seed round, with DoraHacks, Knollwood Investment Advisory, Gate.io and Wave Financial participating. The founders also raised $100,000 in a pre-seed round last year.
Despite much debate, cryptocurrency remains unregulated in the United States. As such, there is no official requirement for KYC or AML checks. However, Yonel and many industry experts believe federal authorities will implement widespread regulations in the coming years.
“A lot of it boils down to identity verification,” he explained. “And then checking certain databases to make sure that identity is safe, and not involved in terrorist financing or sanctions lists.”
While it might seem antithetical to DeFi’s overarching goals, Yonel noted that he works with several major institutions that require KYC and AML tools. He said the platform provides traditional finance officials the option to utilize decentralized systems, and believes there is momentum for that technology following FTX’s collapse.
In addition, Yonel said Blue’s tool would allow retail traders to buy and sell cryptocurrency in a compliant manner by helping them identify who is on the other end of a transaction. He said it would also aid in the complex tax reporting process.
Blue ID is the company’s signature product, and Yonel likened it to an identity passport. He explained it stores credentials that represent users’ attributes, like age or location.
After meeting regulatory requirements, Yonel said the platform would help institutions increase value propositions for customers. Utilizing DeFi systems would allow banks and merchants to settle transactions immediately and for a fraction of Automated Clearing House (ACH) and wire transfer costs.
The founders sought to raise $2 million but significantly exceeded their goal. Yonel relayed that they didn’t need to raise $3.2 million in cash but thought it was wise to secure the strategic partnerships that arose from the seed round.
“It was a huge relief because that capital gives us the runway to execute our vision,” he said. “And now we have the ability to complete security audits, expand our core team and bring our solution to market without needing to worry about money. So, it was huge for us.”
Blue’s website already highlights one recent audit, and Yonel said that shows the founders’ focus on security and transparency. He noted that another is forthcoming, and a partnership agreement mandates that they complete a new inspection whenever the platform receives a code update.
Yonel expressed that he is “always interested” in adding local talent to the startup’s team and encourages anyone interested in a career in cryptocurrency to reach out via Blue’s website or social media channels. The founders will need all the help they can get if their “massive vision” comes to fruition.
“We believe that every transaction in the economy in the future will be in cryptocurrency for the technological advantages it provides,” said Yonel. “Our technology is structured in a way that would be applicable to any transaction and use case in the economy – whether you’re buying a Gatorade at Walmart or paying your rent online.”