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 21 – August 28

Michael S. Klena
August 30, 2023

21 Crypto Private Financings Raised ~$69M

21 Crypto Private Financings Raised ~$69M

Rolling 3-Month-Average: $154M

Rolling 52-Week Average: $222M


Segment Overview

Happy end-of-August!  Too early to feel the crisp fall air, but glimpses are starting to show in Halloween candy already on display.  I continue to lobby our firm to buy the 12 foot skeleton as our mascot to bring to every conference we attend, but no takers yet.  Deal counts are at a consistent level for the month but reported capital is still low due to undisclosed amounts and summer slow down.


Selected Highlights 

Circle sold an undisclosed stake to Coinbase.  Circle is the 2nd largest stablecoin provider with a 21% market share.  Coinbase is the well known crypto trading firm.    

Why Notable?  These firms have have a commercial relationship, and have now deepened their connection.  This transaction has been well covered by the media, and our view is that this makes sense.  Stablecoins have become a fundamental part of trading infrastructure.  Exchanges often use their own stablecoin, but haven’t been as widely adopted as 3rd party providers like Circle.  WIth PayPal’s recent launch of their own stablecoin, we are seeing the product used beyond the crypto ecosystem to ease friction in traditional finance.  Coinbase is closely watched by everyone, so we expect other firms to take serious look at similar partnerships.

Maple Finance raised $5MM led by BlockTower Capital and Tioga Capital with six additional investors chipping in.  Maple Finance is a DeFi lender, and will use the funds to focus on Asia growth where they claim regulations are clearer.

Why Notable?  Lenders certainly have had a rough go, with the segment littered with debris from the high profile blow ups of Celsius and BlockFi.  With widely varying regional regulatory frameworks, the slowdown in trading, and general crypto headwinds, lenders are searching for sustainable growth.  That Maple FInance was able to raise in a beaten down segment in a slow market shows deals can still get done with tempered expectations.


Nodal Power raised $13MM from Spacestation Investments.  Nodal Power is a startup using landfill emissions to power bitcoin mining.

Why Notable?  Bitcoin mining has had a continual push to find green energy sources.  Harnessing methane emissions from landfills is a new wrinkle for me, although we have seen other firms use similar flaring capture from oil production.  



Infrastructure continues to be the main segment attracting capital, with a mix of DeFi and CeFi technologies.  



We will be at Permissionless (Sept. 11-13); Singapore Digital Asset Week + Token 2049 (Sept. 10-21); and Mainnet (Sept. 20-23).  If you will be there, let’s schedule time to connect.