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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 22 – January 28

Steve Payne
January 28, 2024
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We’ve been on a roll of about 3 announced crypto M&A transactions per week for the past year or so, and this week does not break the pattern.

 

Probably the most interesting deal this week was Eco’s acquisition of Join, a web3 shopping app.  Eco provides a digital cryptocurrency platform that can be used for simple payments, and has raised $95M from a blue-chip list of crypto investors including a16z, Coinbase Ventures, Founders Fund, Lightspeed and Pantera.  Price was not announced.

 

Eco’s flagship product is Beam, a crypto peer-to-peer payment tool for the mass market.  Beam offers an Optimism/Base self-custody wallet with 800,000 users that works quite simply – transactions are charged fixed, low fees in the same asset being sent, and onboarding is quick and easy with an X login – no need for seed phrases, etc.  Gas and transaction fees are paid in stablecoins.

 

Join has built a shopping app that lets you purchase anything online with crypto — no need to swap or sell your tokens.  From Join’s web site, it doesn’t appear that the app is currently available.  The company was originally backed by investor Balaji Srinivasan and by a grant from Base.

 

Beam views payments as crypto’s killer use case, and with the addition of Join, users will soon be able to shop anywhere online with stablecoins.  This combination has some fans: