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 29 – September 3

Michael S. Klena
September 6, 2023

26 Crypto Private Financings Raised ~$85M

26 Crypto Private Financings Raised ~$85M

Rolling 3-Month-Average: $136M

Rolling 52-Week Average: $219M


Segment Overview

Below average capital flows this week, but deal count creeping up to the average.  Double clicking on the data, most were earlier & smaller raises, so a lot of seed & pre-Series A deals done.  “Money may never sleep, but big money takes a vacation this week.”  is a quote I just made up to describe this week.


Selected Highlights 

Medallion, Mnemonic and Web3 Pro were the top 3 in money raised with a collective $40MM+ captured.  All are in NFT space or its variants.  All three are more toward the infrastructure segment.  Lead investors were not disclosed


Why Notable?  

Loosely I think of them as NFT 2.0, moving beyond the crazy speculative phase to an actual use case. These firms can help overcome the negative perception when people hear “NFT”.  Infrastructure in general continues its dominance as a capital attractor regardless of what it supports.


Sortium raised $8MM with our friends at Arca leading the round. Sortium is an AI platform for gaming and virtual production industries, using both large language models and generative AI.  Sortium also has a blockchain component, tokenizing items produced.


Why Notable?  Even though it’s an AI forward firm, using the blockchain to tokenize assets to show provenance and ownership marries cutting edge technologies from two spheres.  



No notable patterns for the week beyond the usual infrastructure and DApps as the main deal segments.

Turning to the future, we have heard from several investors they are back and actively looking after the summer slow down.    While it hasn’t been hundreds of investors telling us this, it is enough to make it feel like Q4 should see an easing of the money spigot.  Whether it’s a full turn or a partial turn of the spigot is the main question in my mind



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.