Banks and fintechs have long deployed a suite of tech to flag suspicious transactions and ensure they’re not catering to bad actors. Now, as crypto seeps into mainstream finance, these same institutions need software to monitor crypto transactions. A new startup called CipherOwl is helping to do just that, and on Thursday announced that it had raised $15 million to help businesses with crypto compliance.
The venture firms General Catalyst and Flourish Ventures led the seed round, with participation from investors like Coinbase Ventures and Enlight Capital, among others. Leo Liang, cofounder and CEO of CipherOwl, declined to disclose at what valuation his company raised its round.
“As we see a shift from a fiat ecosystem to a more on-chain payment infrastructure, there’s going to need to be the same—or if not even more sophisticated—compliance and fraud systems,” John Onwualu, principal at Flourish Ventures, told Fortune.
Crypto compliance—with AI
There is already a crowded field of firms that monitor transactions involving cryptocurrencies like Bitcoin and Solana, including long-established brands like Chainalysis, Elliptic, and TRM Labs. These companies have become even more in demand as big banks like JPMorgan Chase and Morgan Stanley, which are historically some of the most conservative financial institutions, dive even deeper into crypto.
Still, Liang and his cofounder Ming Jiang believe they can carve out a niche in a competitive field. The duo are longtime colleagues who first worked together at Cruise, a self-driving car startup that General Motors bought in 2016 and then shut down in December. After Cruise, the two software developers went on to Coinbase, where they worked on building out the crypto exchange’s compliance software.
In 2024, Liang and Ming decided to leave Coinbase and found their own compliance startup. In what Liang calls the “dark forest” of crypto, where pseudonymous transactions race across obscure blockchains, the duo want their startup to be a sentry, or “owl,” looking out for their clients. (That’s how the two arrived at CipherOwl, their startup’s name.)
Since December, when the pair first began selling their software, they’ve attracted big-name clients. They include Coinbase, the crypto exchange OKX, as well as public sector customers, including law enforcement, whose identities Liang and Ming said they couldn’t publicly disclose.
With only eight employees, CipherOwl’s edge over established incumbents is AI, said Liang and Ming. While all crypto compliance companies use generative AI to speed up their operations, CipherOwl has built it into their processes from the ground up, said Marc Bhargava, managing director at General Catalyst.
“I would just expect that an AI-native team that’s implementing these improvements is most likely to benefit from all of this new technology rather than some of the incumbents,” he told Fortune.
For example, after CipherOwl flags a transaction, the startup uses AI to generate an easy-to-read report that explains why the transaction was likely flagged and gives human reviewers a head start on diagnosing why a crypto transfer was suspicious.
“It’s less expensive and much more efficient,” said Jiang.