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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 January 15 – January 21

Steve Payne
January 21, 2024
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Three transactions were announced this week, none with announced valuations or of material size.

 

Xalles, a pink sheet fintech holding company, acquired CashXAI, an early-stage network of self-service cash-to-digital-currency kiosks in Mexico.  CashXAI has major plans to expand across Mexico, the U.S. and internationally.

 

Taki Games merged with Unite, a Polygon-based web3 gaming company to further the transition of its web3 mobile casual game business from Solana to Polygon network.  Taki is not the only game company to announce a shift to Polygon this week, as Polygon is viewed as a strong L2 Ethereum scaling solution for web3 games, due to a large user base and low gas fees.  Concurrently, Taki announced a partnership with Quickswap, a decentralized exchange (DEX) on Polygon, to launch TAKI liquidity pools. These liquidity pools will allow seamless transfers of TAKI tokens between the Solana and Polygon networks.

 

We recently published our Year-End 2023 Crypto M&A and Financings Report which highlighted the activity of the past year, in detail and led by data, and took a look towards what is next.  You can download the full report here

 

One of our themes addressed developer tools & infrastructure, where Mysten Labs is a leader.  Mysten’s first product, Sui Blockchain, is a newish layer 1 blockchain network that could pose a threat to Solana.  Which brings us to the most interesting deal announced this week: NAVI Protocol, the #1 liquidity protocol on the Sui blockchain, acquired Volo, a premier liquid staking service provider (liquid staking allows users to earn yields on their staked SUI tokens while maintaining liquidity).  According to NAVI, this move marks the first time a protocol in the Sui ecosystem will offer combined borrowing, lending, and liquid staking services.  Mysten itself has raised some $330M, led by FTX.  Other details on this transaction have not been announced.