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 22, 2023

Activities of broader public market players are increasingly relevant to the public crypto market sphere. This is of course no surprise, as we have long believed the distinction between traditional finance and the crypto/digital asset sectors will diminish over time, with crypto and its core technology inevitably becoming an integrated component of global financial and capital markets. This is true on both the speculative side, as investors seek the ability to allocate to crypto-based investment as an asset class, and on the infrastructure side, with blockchain-based technologies poised to permeate the inner workings of global finance.


This week saw two such moves from players outside our core public crypto index that will likely reverberate for the companies we cover. Interactive Brokers (NASDAQ: IBKR), the tech-enabled online trading and custody platform, has formally partnered with Zero Hash, a “crypto-as-as-service” company that embeds digital asset trading into existing customer trading interfaces. The partnership will give IBKR clients access to Zero Hash accounts to trade BTC, ETH, BCH and LTC directly through IBKR’s platform.  Zero Hash’s API-enabled integration seems purpose-built for the popular fintech trading platform, perhaps unsurprising after IBKR’s participation in Zero Hash’s 2021 Series D investment round.


On the infrastructure side, Citi (NYSE: C) launched “Citi Token Services” on Monday, using a permissioned private blockchain offering programmable, 24-7 tools for trade finance and cash management to institutional clients.  The services were piloted on the trade finance side by using tokenized deposits and smart contracts to give Maersk an instant settlement solution with a canal authority – similar to a traditional bank guarantee/letter of credit facility, but without the friction of cut-off times and gaps in the service window – and will also target corporate treasurers with tools to manage global liquidity on a just-in-time, programmable basis.