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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.

METHODOLOGY

The Architect Method

With hands-on senior leadership, our approach delivers premium value in emerging tech-driven markets.

Preparation

KNOWING THE CONTOURS OF THE TERRAIN AND SPEAKING THE LANGUAGE.

We live and breathe the front lines of tech-driven disruption. We are in constant dialog with key players, publish data-driven analysis, and identify patterns and opportunities as they develop. With decades of transaction successes, the Architect Team moves at the speed of emerging markets, constantly analyzing and mapping new territories as they evolve.

 

  • Crypto focus
  • Deep acquirer & investor relationships
  • Unique industry insights
  • Expertise honed through multiple market cycles

Calibration

CRAFTING THE NARRATIVE TO CLEARLY COMMUNICATE STRATEGIC FIT.

Every successful acquisition or financing is built on a great story. We’ve honed classic storytelling models to calibrate company narratives to fit with specific acquirer strategic needs. In constant contact with the major players, we understand how they view the market. At the core, we artfully match buyer needs with solutions.

 

  • Crystal clear value propositions
  • Articulating future value
  • Speaking in plain English
  • Messaging tailored to each specific target

Execution

RELENTLESS DRIVE.

Transaction execution is an art that requires both experience and crisp execution. We’ve seen it all, so we know in advance what to expect and how to guide our clients through complex situations. The other half of the formula is plain hard work – we are highly detail-oriented and relentless in driving to premium outcomes.

 

  • Hands-on engagement from senior partners
  • Targeting the right decision makers
  • Full transparency with clients on all conversations
  • Meticulous process management

Emergent sectors require logical

frameworks to bring order to the chaos.

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