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 25, 2023

It is hard to avoid headlines about the crypto winter, the saga of SBF’s current abode and internet access, and who wants to sell who’s stolen crypto to whom. But the real story is developing beneath the headlines, and perhaps more quickly than anticipated.


For example, Citi released its third annual financial markets infrastructure whitepaper, listing digital assets and DLT adoption as one of three critical themes.  Their market survey that found three-quarters of the FMI industry are actively engaged in DLT/digital asset initiatives, and 79% view tokenization as the defining growth story in digital finance. Those are big numbers, among big institutions that provide the foundation of global financial and capital markets.


And three recent announcements highlight brewing competition in one of our favorite use cases – payments. Last Thursday, Mastercard heralded a new working group to explore the implementation of CBDC’s into the global payments. The “CBDC Partner Program” – which includes Ripple, Consensys, Fluency, Giesecke+Devrient and Fireblocks – will focus on complex often controversial issues facing CBDC deployment such as the inherent tension between privacy and transparency, technological security, and the challenge of user adoption amid skepticism about central control.


And the field of private digital payment options is increasingly crowded. On Monday, Coinbase announced a strategic minority investment in Circle (details not disclosed) and the dissolution of the pair’s Centre Consortium that has managed the issuance and governance of USDC stablecoin to date. Circle will now bring issuance and governance fully in-house and seek to add six additional blockchains to support USDC in an effort to enhance the interoperability of the world’s second-leading stablecoin.


Then Wednesday, SolanaPay’s integration with Shopify hit the tape, bringing Solana’s zero-fee and nearly-instant digital payment tool to Shopify’s vast global network of online merchants, starting with USDC and expanding to include other crypto assets. This of course is in the wake of last week’s PYUSD launch by the giant PayPal.


As with Citi’s report on financial market infrastructure, these strong moves by giants in global commerce (remember when we called it “e-commerce”?) portend potential seismic shifts in global finance and commerce built on blockchain-enabled tech. Surely these will prove more consequential than how frequently a certain household name gets to check his email.