Technical Due Diligence for a Crypto Exchange
DeepInspire conducted technical due diligence of a crypto platform targeted for acquisition by one of Europe's largest cryptocurrency exchanges.
At present, this case study is subject to a NDA, meaning that all screenshots and images provided are for illustrative purposes only.
About client
Our client stands as one of Europe's largest centralised cryptocurrency exchanges.
Serving a diverse global user base, it offers multiple trading options and boasts a significant trading volume. The company prioritises security and customer support to ensure a safe and reliable trading environment. In addition to retail services, the company provides tailored institutional solutions for various entities.
The cryptocurrency exchange's ecosystem includes proprietary blockchain technology and solutions for cryptocurrency transactions, supporting businesses in accepting payments across multiple cryptocurrencies.
Challenge
Our client, a large European cryptocurrency exchange, was actively considering expanding its operations through a strategic acquisition. With a focus on maintaining technological excellence and security standards, the exchange leadership recognised the importance of conducting thorough technical due diligence (TDD) before finalising the acquisition deal.
The company’s leadership contacted DeepInspire, a leading tech due diligence expert in the fintech domain, to conduct a comprehensive assessment of a crypto platform targeted for acquisition. The exchange sought an expert evaluation of the platform's technology state to inform its decision-making process regarding the potential acquisition.
Our Approach
Together with the client, we agreed to proceed in two phases:
Firstly, we will conduct an overview TDD in a timely manner to provide the client with initial insights into the targeted platform's technology state. During this preliminary assessment, we will identify areas requiring further detailed TDD and outline a detailed step-by-step action plan, including timelines and resource requirements.
Armed with our findings, the client will be empowered to make informed decisions regarding the acquisition.
Should the client decide to proceed with acquiring the crypto platform, we will conduct a comprehensive tech due diligence based on the detailed action plan we've prepared. The primary objective of this TDD is to develop specific recommendations to enhance the system's security, efficiency, and reliability.
Let’s explore the process in more detail:
Architecture and Infrastructure
We conducted a review of the platform's architecture and infrastructure, focusing on its scalability, performance, and overall design. Our experts evaluated the main system's components and their interactions and pinpointed key elements requiring special attention during the more detailed tech due diligence.
Also, we assessed integrations with external third-party services such as identity verification services, communication services, etc. Our focus encompassed aspects such as data protection, access management, compliance with regulatory standards, and recovery plans for failures or issues with external services.
Data and Security
We analysed data processing and storage mechanisms to check whether the platform adheres to industry best practices and security standards. Recognising the paramount importance of security in the cryptocurrency exchange landscape, our focus was on assessing these mechanisms from a security standpoint and identifying vulnerable points.
Our experts evaluated the key databases used by the system, paying attention to factors like data encryption, access management, backup and recovery, and the availability of clear procedures and instructions for accessing and managing operations in the database. These factors are crucial for safeguarding sensitive data against unauthorised access. Also, they are essential for minimising data loss and ensuring business continuity in the face of unforeseen events such as system failures or cyberattacks.
People and Processes
In addition to technical assessments, we evaluated the platform's human resources capabilities and operational processes. This involved gathering information about the individuals involved in critical processes, identifying their roles, responsibilities, and availability during the technical due diligence.
Furthermore, we analysed key business processes, operational workflows, and adherence to industry standards and best practices. This allowed us to identify potential risks and weaknesses within the operational framework, providing valuable insights for mitigating vulnerabilities and optimising process performance.
Action plan for a more comprehensive TDD
Based on the information gathered and the analysis conducted, we developed a detailed plan for a more thorough TDD after the acquisition. The main purpose of this TDD is to understand the system better and develop specific recommendations to enhance its security, efficiency, and reliability.
This document includes:
- List of elements requiring additional attention in the detailed audit;
- Step-by-step action plan;
- Identification of key stages and timelines;
- Assessment of required resources and efforts;
- List of potential risks with recommendations for their elimination or minimisation.
Value Delivered
The technical due diligence conducted by DeepInspire provided valuable insights into the technology state of the targeted crypto platform.
- evaluated the current technology state of the platform, pinpointed the key issues, and assessed potential risks;
- enabled our client to make informed decisions regarding the potential acquisition;
- revealed the true technical state of the targeted crypto platform;
- enabled our client to negotiate the acquisition price based on a more accurate understanding of the platform's value and potential risks;
- identified areas where a more comprehensive TDD is needed;
- developed a detailed plan for a subsequent more detailed analysis (to make specific recommendations to improve the platform’s security, efficiency, and reliability)
Overall, DeepInspire's technical due diligence not only provided valuable insights into the technology state of the targeted crypto platform but also equipped our client with the strategic guidance needed to navigate the complexities of the cryptocurrency landscape with confidence and clarity.
