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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
Futures.
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
Financial.

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.

Alerts

HashKey Raises $100M

Eric F. Risley
February 1, 2024
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On January 15, 2024, Hong Kong-based digital asset financial services firm, HashKey Group, raised $100 million in a Series A funding round, valuing the company at over $1.3 billion.

Transaction Overview

On January 15, 2024, Hong Kong-based digital asset financial services firm, HashKey Group, raised $100 million in a Series A funding round, valuing the company at over $1.3 billion, with investments from undisclosed strategic partners, institutional backers, and Web3 entities which include OKX Ventures.

 

Company Description

HashKey Group, based in Hong Kong with 120 employees, is an institutional-focused exchange and venture capital investor. 

 

Founded in 2018, HashKey Exchange & Custody offers a suite of crypto capabilities to Asian institutional investors including brokerage services, trading services, staking infrastructure that supports over 40 chains, and Multi-Party Computation (MPC) based custody capabilities. HashKey Exchange, their largest business, is a crypto asset exchange regulated by the Hong Kong Securities and Futures Commission, with 155,000 registered users and a daily trading volume of $630 million for the past month. HashKey Exchange also offers a brokerage service for accredited investors, providing secure crypto asset trading with a minimum size of $100,000, such as USDT/USD and BTC/USD pairs.

 

HashKey has also announced several products intended to support the emergence of so-called Web 3.0 DApps.  These include HashKey DID (Digital Identify), a digital wallet named HashKey Me, and a software developer support effort named HashKey Hub.

 

Founded in 2015, HashKey Capital manages venture capital fund investing in blockchain projects, including tokens and equity, from pre-seed to Series B. They have $1B+ assets under management across 3 funds. Significant investments include dYdX, FalconX, Animoca Brands, Polkadot, and many others, totaling 268 total investments according to PitchBook.

 

Funding

HashKey’s first publicly disclosed funding is this Series A financing although prior funding is implied.  HashKey failed to disclose specific investors, rather opting for more generic descriptions of types of institutions, other than OKX Ventures.  OKX Ventures is a $100M fund owned by OKX, the large crypto exchange.  They have 142 active companies in their portfolio today, according to Pitchbook.  Post-money valuation of this financing is over $1.3B.

 

The new capital will be used to enhance HashKey’s Web3 ecosystem, expand its Hong Kong-licensed business products, and support global growth in compliance with regulations. This follows the company’s acquisition of a Capital Markets Services (CMS) license from the Monetary Authority of Singapore (MAS).

 

Competition

HashKey Group competes with a broad array of other crypto brokers and exchanges such as OKX, Bithumb, Binance, Kucoin, Bitstamp, and Crypto.com among others.  HashKey’s Web 3.0 DApp efforts are designed to complement building products on a variety of blockchains, complementing those efforts more than competing directly.

 

Architect Partners’ Perspective

Can you say Deja Vu?

 

Crypto asset investment platforms bear a striking resemblance to traditional investment platforms and asset managers.  One may reasonably conclude that they are fundamentally a crypto assets specialized version of Robinhood, TD Ameritrade, Fidelity, and others of that ilk.

 

Growth will driven by regulatory clarity, the evolution and maturation of the investment theses for specific individual crypto assets (also referred to as tokens), new products like the recent Bitcoin ETFs and futures markets, the broadening of investor participation, and perhaps most importantly, the building of trust and confidence in the legitimacy of both the asset class and the companies and projects that support the industry.

  

Sources 

PitchBook, Company Website, Press Release