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.


Week of August 14 – August 20

Michael S. Klena
August 23, 2023

23 Crypto Private Financings Raised ~$203M

Rolling 3-Month-Average: $166M

Rolling 52-Week Average: $230M


Segment Overview

Led by BitGo, this week featured three, $20M+ capital raises and the total capital raised for the week was above the three-month rolling average.  A trend developing?


Selected Highlights 

BitGo raised $100M from new, strategic investors at a $1.75B post-money valuation. BitGo is an NYDFS-regulated qualified custodian (QC) providing custody, financial services, and core infrastructure to over 1,500 institutional clients globally. The company is the leading crypto custodian, processing 20% of all Bitcoin transactions by value, and has top-tier clients such as Nike, Bitstamp, Pantera, eToro, and Mysten Labs (read more on this financing in our Financing Snapshot here). 


Why Notable?  BitGo has sustained their business during a very difficult period (measured by AUC & number of customers) and recently introduced the BitGo Go Network to address the gaping hole left by the demise of Silvergate and Signature’s settlement networks.  Attracting institutional capital today, at scale, is a very welcome signal of confidence for the industry. 


ZetaChain raised $27M from a large group of impressive investors, including, CMT, Foundation, GSR, Jane Street, VY Capital, and Sky9. ZetaChain seeks to become a blockchain solution for interoperability, allowing projects, users, and developers to migrate across numerous chains without hiccups.


Why Notable?  This is a healthy-sized round for a project that is still in its test net phase demonstrating the importance of solving the age old problem of technology, user and network islands.  History taught us that the suite of widely adopted communication protocols embedded in TCP/IP is what allowed the Internet to bloom.  What allows the same powerful network dynamics to be created for the innumerable blockchain islands in existence today? 


Dinari raised a $7.5M seed round, which included investors such as Susquehanna. Dinari offers non-U.S. individual investors access to U.S. equities.


Why Notable?  Dinari notes that far more individual in many countries have a digital wallet holding crypto assets than have access to a brokerage account.  Their vision is to allow those that hold a digital wallet to access U.S. equities through their digital wallets using a token-based structure.


Patterns  Early-stage financings (seed and series A), by count, continue to dominate, representing 86% of all announced financings.  For important context, crypto is demonstrating exactly the same trend as the overall technology financing markets.