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.


Q3 2022 Crypto Quarterly Snapshot

Steve Payne
May 3, 2023

17 Crypto Private Financings Raised ~$124M

Last week was one of the slowest weeks of the year for crypto private financings, with only $124M in disclosed raises. Typically, large industry events like Consensus last week in Austin are impetus for announcements, but this year we heard mostly Texas crickets.


One topic that came up in most of Architect’s meetings at Consensus was the U.S. regulatory environment. Most participants bemoaned the lack of clarity, and many were considering investments/acquisitions outside the U.S. to be better situated in growth markets. And then we saw Coinbase filing a lawsuit against the SEC in an attempt to force some clarity one way or another – we will wait and see what happens.


The largest investment announced last week was Zodia Custody raising $36 million in equity led by new investor SBI Holdings with participation from follow-on investor Standard Chartered Ventures. Zodia is a custody provider formed by a joint venture between Standard Chartered and Northern Trust a few years back. Earlier this year, Zodia Custody partnered with SBI to offer custodial services for the Japanese institutional market, so this is a purely strategic financing. A more detailed summary of this transaction will be posted on the Architect web site here.


The second largest financing last week was Axoni, a New York-based provider of data synchronization technology and financial market infrastructure. Two years ago BlackRock announced it had begun to use Veris, Axoni’s distributed ledger network, for equity swaps, joining Citi, Goldman Sachs and other counterparties. Axoni allows all parties on a trade to match and confirm all trade terms upfront and remain synchronised on post-trade events such as amendments, positions, and cash flows through the lifecycle of the swap. This financing fits neatly with Architect’s theme regarding the importance of data and data analytics in any market, especially crypto.


The $20M Axoni financing was led by EJF Ventures, with participation from Laurion Capital Management, Communitas Capital and existing investors. Prior to this round, Axion had raised $90M from a long list of leading crypto-centric and strategic investors including Andreessen Horowitz, Citi, CME Ventures, Coatue, DCG, Deutsche Bank, DCVC, FinTech Collective, F-Prime, Franklin Templeton, Goldman Sachs, HSBC, Intel Capital, JP Morgan, LSEG, Nyca Partners, UBS, Wells Fargo and Y Combinator.