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 May 15 – 21

Steve Payne
May 24, 2023

26 Crypto Private Financings Raised ~$246M

What a difference a week makes.  Last week Architect tracked $246M in announced private financings in the crypto sector, probably the most active week in two months but still below the average week in 2022.   Add in two large financings with unreported amounts (Lifeform raised at a $300M post money valuation led by IDG Capital; and Metagame Industries raised at a $100M valuation) and we’re roughly back at 2022 levels.


The theme here has to be continued early-stage building.  The top ten announced financings were all Seed or Series A.  This is consistent with a drastic across the board slowdown in later investing stages across tech.  SaaS entrepreneur Jason Lemkin recently tweeted his guess at “how frozen the venture markets are, roughly, by stage:”


Crossover: 95%

Growth: 85%

Series C: 75%

Series B: 65%

Series A: 50%

Seed: 33%


And this is SaaS-centric – other segments are worse!  On this basis, crypto financing levels are not particularly worse than venture in general.


The largest raise announced last week was by Auradine, raising $81M ($71M in equity and $10M in a line of credit, no tokens) in their first institutional round at a valuation reported by The Block at over $500M (note that this round closed last year before the FTX collapse, but was just reported).  Auradine has not provided much info on their business, but it involves AI and blockchain applied to Infrastructure/security solutions.  This one looks like a classic old-school deal, led by non-crypto-centric venture capital firms Celesta Capital and Mayfield. The highly experienced founding team has collectively had tens of billions in successful exits from NetBoost, Cavium, Innovium and Palo Alto Networks.