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
September 1, 2023

Earlier this week the CEO of a publicly-traded blockchain/digital assets company told me what he is most worried about in the current market environment – that the eventual U.S. regulation blocks the crypto and digital assets industries entirely from the U.S. markets. Or that consistent court losses somehow revert to “open season” without a base level of regulation and investor protection, preventing mainstream & institutional adoption. Of course, the immediate question is what to do now – anything in between his extremes is likely manageable, provided some clarity emerges before dwindling cash reserves are spent and/or the chilly investor environment thaws.


The lack of definitive action from the U.S. legislature, and the enforcement-only mindset from the executive branch, inevitably focuses attention on the judicial branch for clarity. But relying on the courts is a slow, imperfect and expensive process, with often conflicting results (such as the current conflicting rulings in S.D.N.Y. on how to define a security) and long periods to resolve inevitable disparities.


This theme has occurred throughout the past year, and the saga continues this week with Greyscale’s victory in its battle with the SEC over its ETF Application for its Bitcoin Trust, quickly followed by the SEC delaying its decisions until October for numerous spot ETF applications. The SEC has 240 days to review applications and has generally used this full period, so the announced delay should have been expected, but its proximity to the Greyscale ruling cannot be ignored. Would-be regulators who have chosen the path of enforcement must now also await responses to court rulings to determine the next move.