ARCHITECT SUCCESSES

SEE ALL
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.

Insights

Week of January 29 – February 4

Arjun Mehra
February 7, 2024
DOWNLOAD FULL REPORT

30 Crypto Private Financings Raised ~$148M 

Rolling 3-Month-Average: $218M

Rolling 52-Week Average: $180M

 

Although this was the lightest week in terms of capital raised since the New Year, deal count remained significant and roughly 40% higher than the 2023 weekly average. 

 

The increased deal count that we have seen over the past 5 weeks is likely due to a trend we have seen before, lots of Seed-stage deals. Year to date, out of the ~160 financings we have seen, 49% are Seed-stage, exactly in line with 2023. 

 

This is not to stay late stage financings aren’t happening. As evident by last week’s perspective, significant capital has been raised this year ($2B), which would be a 160% increase compared to 2023 using the January run rate.

 

In other news, unlike other crypto initiatives announced by major companies that feature a press release and not much else, PayPal has continued to push the use of its PYUSD stablecoin. This week, PayPal Ventures used PYUSD to invest in Mesh, a crypto payments & transfers platform. While not a large-scale investment, it marks the first time that PayPal has used its stablecoin to fund an investment.  

 

Events

Architect Partners will 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.