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 7 – August 13

Michael S. Klena
August 16, 2023

20 Crypto Private Financings Raised ~$65M

Rolling 3-Month-Average: $174M

Rolling 52-Month Average: $231M

Segment Overview

August – like July just hotter & more humid (for us in the northern hemisphere).  August so far is as slow as expected with capital flows below average and smaller deal sizes.


Selected Highlights 

Moneygram took an investment from Stellar, hitting the tape just yesterday.  Following a commercial working relationship, Stellar’s Foundation head will join Moneygram’s board to help further the digital strategy.  Moneygram is the well known money transfer firm with online and physical locations.  Moneygram was taken private by Madison Dearborn Partners, the large PE firm, in June.  Terms of Stellar’s investment were not disclosed.


Why Notable?  Very rare to see a crypto native invest in a notable traditional firm.  The Stellar foundation has sizable assets and using them to cement partnerships is something, as an investment banking firm, we encourage. We may add additional commentary in next week’s snapshot.


Helio Protocol raised $10M from Binance Labs.  Helio combines its overcollateralized, decentralized stablecoin (HAY) borrowing and lending on Binance’s BNB chain, with multichain Storage-as-a-Service (STaaS) and Liquid Staking Derivatives Finance (LSDfi). Quite a mouthful of lingo!  The protocol lives in the DeFi space and has nearly $300M in total value locked.  Last month, Helio Protocol also acquired Synclub to boost its staking infrastructure.  


Why Notable?  Binance Labs has been on a bit of an investing tear, investing in firms that can propagate its own assets such as the BNB chain. For DeFi, we’re seeing CeFi and TradeFi infrastructure migrate into the DeFi world with its own unique spin.  Managing risk in DeFi continues to be an area with significant room for growth.


Cube3 and Spearbit each raised for their seed round.  Cube3 is a Web3 security platform protecting smart contracts from malicious transactions and raised $8.9M with Blockchain Ventures leading.  Spearbit is a marketplace for security experts to advise on Web3 projects and raised $8.3MM with Framework Ventures leading.  


Why Notable?  Both are security for Web3, the often hyped concept. Security for this evolving technology is critical for it to mature and be given serious consideration for adoption.  Raising seed rounds of a decent size shows the continued interest in the segment.


Patterns  Web3 was a popular sector this week, with a fair number of firms focused on infrastructure stability, from security to data analytics.  These functions are signs of the maturation phase in the typical technology cycle.