One of the barriers to bringing cryptocurrency into the mainstream is the frequency of fraud in the space. Last year alone, more than $3.9 billion in crypto was “lost” according to an industry report, even though the number had already fallen by about 50% from the year before.

Francois Le Nguyen, an angel investor and former general manager at Entrepreneur First, is one of the victims of crypto scams: in a phishing attack on Discord, he lost $10,000 worth of Ethereum and NFTs.

If even cautious investors like himself and notable NFT figures like Kevin Rose are susceptible to wallet hacks and scams, everyone is vulnerable, Le Nguyen told CoinTech in an interview.

“The motivation is to avoid screwing my relatives, my friends, because I know eventually one of them will get screwed,” he said. “While we talk about owning your own keys as the next wave of the way you should manage your assets, if you don’t have the tools to protect yourself, disaster will happen because every thing you interact with has a potential threat, which is so scary.”

The harrowing loss prompted Le Nguyen to develop security solutions for crypto transactions with the help of his co-founder Jake Harwood, an effort that eventually became Staging Labs. Today, the startup, which currently has three full-time employees, announced it has raised $1.1 million in an oversubscribed pre-seed round.

“Recent events in the US banking industry remind us that there are regulatory and systemic protections that we often take for granted in the TradFi [traditional finance] world,” says Kabir Kumar of Flourish Ventures, an investor in Staging Labs. “Those safeguards have yet to be built in the crypto world. Individuals are expected to take care of themselves, especially against fraud and scams.”

That’s where Staging Labs comes in. Initially, the startup aimed to create an “SOS button” for crypto transactions, something akin to a credit card’s freeze option. But it quickly realized the limitations of this approach: What if a user isn’t near their device? It repeated the concept and came up with a more advanced version called Saferoot that can actively and automatically scan transactions 24/7.

In the event of a malicious attack, Saferoot works by automatically transferring digital assets from a vulnerable wallet to a backup vault. This is done by intercepting a transaction after a user clicks “send” but just before the funds are processed.

“Blockchain technology is seen as immutable or you cannot change it after clicking ‘confirm’. That is not technically true, as there is a short amount of time during which the transaction is pending or processed. So that’s where we play,” explains Le Nguyen.

Saferoot does not necessarily predict or detect malicious attacks. Rather, it sets off an alarm when a transaction exceeds a user’s defined limits, similar to how people protect their credit cards by adjusting spending limits. Over time, however, Le Nguyen wanted the risk monitoring component to become “smarter.”

Once Saferoot notices a suspicious transaction, it shoots it down and sends another transaction in its place to move the asset before the hacker can steal the money. This technique is not particularly new and is used by arbitrage traders, Le Nguyen stressed. But he argued that the company’s moat lies in sending a transaction in a short amount of time, which is “a very, very difficult problem with distributed systems.”

“This is where my co-founder’s background comes in,” Le Nguyen noted, referring to Harwood’s experience building a network-distributed system for speaker maker Sonos.

The stage where Staging Labs currently intervenes is called the “in-flight” portion of a transaction. In the long run, the startup plans to also focus on pre-flight, meaning before a user initiates a transaction, and post-flight, which typically involves recovering funds and possible police intervention. The company is already in talks with partners to develop capabilities for the final two phases.

While Saferoot appears to be a SaaS solution, it takes a slightly different path to monetization. The company recognizes that fund protection is an essential part of asset transfers and plans to charge users a subscription fee and a percentage of assets that are successfully recovered.

It will also share revenue with wallets, which act as major service distribution channels in the crypto world, but often struggle to generate revenue on their own. It is currently in talks with “dozens” of wallets and is approaching a single-player partnership.

Staging Labs’ latest funding is a “party round,” which is common for young crypto startups looking for partnerships and during a bear market when investors are more reluctant to lead. The lineup includes The General Partnership, Flourish Ventures, NGC Ventures, AlphaGrep, Gaingels, scouts from a16z, Kleiner Perkins and Greylock, and crypto founders and angel operators from ConsenSys, Coinbase, Anchorage Digital, Chainalysis, QuickNode, Merkle Science and more.