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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
Futures.
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
Financial.

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.

Crypto M&A Snapshot

Week of February 5 – February 11

Steve Payne
February 11, 2024
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Just when we’d gotten used to three announced transactions a week, the cosmos (with a small “c”) sent us six deals this week.

 

The biggest deal.  Crypto custodian and financial services firm BitGo announced it had acquired Brassica, an alternative assets infrastructure provider.  BitGo CEO Mike Belshe put it well: “We currently have a dichotomy in financial services – one side deals with traditional securities and the other deals with up-and-coming blockchain-based assets and cryptocurrencies. With this acquisition, BitGo becomes the first major financial services firm to be able to provide comprehensive infrastructure support for both traditional private securities and blockchain-based assets, while significantly expanding our global presence.” Brassica offers back-end infrastructure services for private securities and alternative investments, including multi-asset custody, record-keeping and transfer agent services.  This move by BitGo is seen as a step towards offering tokenized securities (RWA).  Terms were not announced, but Brassica investors such as Mercury Fund, Valor Equity Partners and Long Journey Ventures were reported to be receiving shares in BitGo.  Brassica had raised an $8M seed round at a $26M valuation in 2023, and BitGo had most recently raised $100M in 2023 at a $1.75B valuation.

 

Trade finance in Singapore.  Two smaller transactions were announced this week:  xalts, an HK-based provider of infrastructure for programmable assets, acquired struggling Singapore-based digital trade finance network Contour.  Contour had raised $4.9M from Bangkok Bank, Citi Ventures, Standard Chartered, etc. and had signed a few dozen large banks.  Also, Singapore-based global invoice financing network Incomlend acquired fellow Singapore Web3-powered trade finance network LC Lite.  

 

How to acquire a DAO.  Venture studio SYS Labs this week announced taking a majority stake in Uno Re DAO, a provider of DeFi insurance coverage with $15M in on-chain policies.  SYS is behind the Syscoin and Rollux ecosystems, and drove the non-cash merger to strengthen their L2 offerings.  The DAO proposal to have SYSLabs replace some Uno Re DAO Core Contributors with SYS Lab executives was approved by 100% of those voting.  Uno Re gets new leadership and resources to continue its mission.

 

Events

If you missed us at the Satoshi Roundtable last week, Architect Partners will next be at ETH Denver (2/29 – 3/3), and Digital Asset Summit (3/18 – 3/20). Please contact elliot@architectpartners.com or arjun@architectpartners.com if you would like to meet.