Coinbase Acquires Futures Exchange FairX
Coinbase Acquires Futures Exchange FairX

On January 12th, 2022, Coinbase announced the acquisition of FairX, a
Commodities Futures Trading Commission (CFTC) registered Designated
Contract Market (DCM) offering futures. Architect Partners served as the
financial advisor for FairX.

FairX operates a regulated futures exchange for retail investors. The
company offers 1) straightforward and retail user-friendly products 2)
discounted fees compared to a traditional futures exchange, 3) retailfocused products requiring less capital, and 4) committed market makers
enabling strong liquidity. FairX launched in June 2021 and currently offers
futures on two index products in two sizes: the Bloomberg US Large Cap
Index Futures and SuperTech Index Futures, as well as Micro Crude Oil
Since launch, FairX had an average daily volume across its products of about
9,000 contracts. Based in Chicago, FairX was founded in 2019 by Neal Brady,
CEO and co-founder of ErisX, acquired by CBOE (M&A Alert) last year,
Harsha Bhat, CTO and previous SVP/CTO of State Street’s GlobalLink trading
platforms, and Chairman Clifford Lewis. FairX raised over $27 million in three
funding rounds. Notable investors include Hyde Park Venture Partners, TD
Ameritrade, XTX Ventures, Battery Ventures, Limerick Hill, and Virtu

We are seeing a trend of crypto-native firms acquiring regulated entities to
expand their offerings of sophisticated financial products. Both retail and
institutional clients demand regulatorily compliant solutions, but current
regulation is often disjointed as crypto can be an awkward fit for existing
regulatory structures. There has been much discussion regarding a
straightforward set of rules for crypto, most likely tweaks to existing
frameworks. Buying regulated entities therefore provides regulatory
“insurance” for crypto firms while future regulations are being
implemented. Coinbase has done this in the past, via purchases of three
SEC-licensed firms. FTX’s October 2021 acquisition of LedgerX is another
example, absorbing LedgerX’s 3 CFTC licenses of DCM, Swap Execution
Facility, and Derivatives Clearing Organization. We expect this approach to
accelerate in the next twelve months as crypto-native firms continue to
integrate with traditional financial services.

There are several drivers for this acquisition. First, FairX provides Coinbase
with a crypto derivatives regulatory framework for both retail and
institutional investors in the US. FairX is a CFTC registered DCM, and will be
Coinbase’s first entity fully regulated by CFTC (Coinbase applied for an
Futures Commission Merchant license in September of 2021, but has not yet
been approved). Second, it allows simplified access to futures to their
sizable retail client base. Lastly, it furthers Coinbase’s institutional product
line. Institutions need to hedge positions and hedging Bitcoin or Ethereum
is done under the commodity framework in the US.

Crypto Public Companies Snapshot

Crypto Public Companies Snapshot

Todd White
August 18, 2023

Our public index is down 10.5% this week, driven largely by the pullback of BTC, ETH, and across the crypto asset spectrum. Some cite the news of SpaceX’s offloading triggering the pullback, while others attribute the moves to large-scale liquidations on leading derivatives exchanges following heavily-leveraged open positions that were ripe for a feedback loop. As usual, it’s likely a combination of myriad factors that can be hard to predict, analyze or correlate to specific movements. The Network Operators were the hardest hit sub-segment on our index, hardly surprising given their position as leveraged Bitcoin plays.


Also notable is PayPal’s August 7 launch of PYUSD, its US$-backed regulated stablecoin issued by Paxos, available immediately for use in payments through PayPal’s digital wallet. Although PayPal has been muted of late on their crypto and blockchain initiatives, their digital wallet and commerce segment – which includes P2P, remittances and crypto – is one of three strategic pillars (along with network/credit and payment service provider initiatives).  On the heels of the PYUSD launch, PayPal also announced its integration of Ledger Live on August 16th to provide secure crypto purchases using the Ledger Live app directly from a PayPal account.


The opportunities that the PYUSD present are potentially transformative. José Fernández da Ponte, PayPal’s crypto SVP, was understated and cautious in a recent interview, and he highlighted their long-term and patient view towards blockchain-based payments. But one need only ponder how the embedded yield on the assets backing their new stablecoin might be used to mitigate both merchant and consumer payment costs to begin to grasp the potential.


We will watch enthusiastically as PayPal’s strategy takes shape and plays out, and believe their renewed focus merits re-inclusion in our Public Crypto coverage and has brought them back as a leading “crypto-influenced” player in our coverage index, incepting this week.