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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

Sygnum Raises $40M

Michael S. Klena
January 30, 2024
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On January 25, 2024, Swiss-based global digital asset bank, Sygnum, raised $40 million in a strategic growth round, valuing the company at over $900 million post-money.

Transaction Overview

On January 25, 2024, Swiss-based global digital asset bank, Sygnum, raised $40 million in a strategic growth round, valuing the company at over $900 million post-money. The round is led by global asset manager, Azimut Holding, and is joined by other new and existing strategic and financial investors.

 

Company Description

Sygnum is a Switzerland and Singapore-focused digital asset bank serving high-net-worth individuals,  institutional investors, banks, corporates, and DLT foundations. Their service offering includes digital asset banking, asset tokenization, asset management, custody, staking, trading, and lending. By the end of 2023, Sygnum achieved an annualized revenue run rate of $100 million and reached positive cash flow in Q4 2023. The company disclosed $3.5 billion in AUM in the same year, an increase from $2 billion at the end of 2021. The client base also grew from 1,000 at the end of 2021 to 1,700 by the end of 2023.

 

The company has ~260 employees and operates in Singapore, Switzerland, UAE, and Luxembourg, with a client base from over 60 countries. Sygnum is licensed as a banking and securities dealer by Switzerland’s FINMA and holds a CMS license from the Monetary Authority of Singapore. In June 2023, it received in-principle approval for a Major Payments Institutional Licence from the Monetary Authority of Singapore. Sygnum expanded to Luxembourg in December 2022 and acquired Financial Services Permission from Abu Dhabi’s ADGM FSRA in March 2023. Some notable clients include large Swiss banks such as PostFinance, Zuger Kantonalbank, and Luzerner Kantonalbank.

 

Sygnum also has a venture capital arm with a $75M fund that has invested in nine early-stage crypto companies.

 

Funding

Sygnum has raised $40 million in its strategic growth round at a $900 million post-money valuation. The company now has several financial and strategic investors such as Azimut Holding, Sun Hung Kai & Co., Meta Investments, Animoca Brands, Wemade, SBI Holdings, SCB 10X, and others.

 

Funds from this financing round will increase Sygnum’s presence in new global markets and enable quicker regulated product development, like its B2B (bank-to-bank) platform. This platform is currently utilized by more than 15 banks and financial institutions worldwide for cryptocurrency services.

 

In January 2022, Sygnum raised $90 million in their Series B at a post-money valuation of $800 million led by Sun Hung Kai & Co. Previous funding details were not disclosed.

 

Competition

Sygnum competes with others in the digital assets banking space. Some competitors include SEBA Bank and Bitcoin Suisse.

 

Architect Partners’ Perspective

As we discussed in our 2023 year-end report, financings overall were muted in the past 12 months, and the malaise was more pronounced in mid-sized financings ($25-$75M) like Sygnum.  It is our understanding that Sygnum has been in the market for nearly a year and finally gained traction as the overall crypto trading volumes (and the attached revenues) rose from the trough in Q4.    

 

The Swiss regulator, FINMA, is under extreme pressure due to the Credit Suisse implosion, and we believe granting new crypto bank licenses is not a priority.  As one of only 2 licenses granted in Switzerland, the value of the license itself can be driving a slight uptick in valuation along with a general improving sentiment of the market.  We view the valuation at the top end of the range, but caveat that we do not have full information on their revenues. 

 

While it’s not a milestone in the capital raising environment, it is a nice marker that things may be opening up to average flows.

 

Sources 

PitchBook, Company Website, Press Release