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 22 – 28

Steve Payne
May 31, 2023

27 Crypto Private Financings Raised ~$292M

Last week was again fairly active in crypto private financings, with 27 announced deals totalling $292M in disclosed capital raised.  As has been the trend for most of this year, our top ten list is again dominated by seed and Series A financings.


Long-time crypto investors Arrington, gumi crypto and Multicoin were all active last week, continuing to build via $2-3M seed rounds.  We’re interested to see more from gumi’s Openfort investment – Openfort talks about allowing developers to  “blend blockchain invisibly into the backbone of your games”, a requisite to overcoming friction.


The one exception to the early-stage trend is Worldcoin, with the largest raise at a $115M Series C.  Blockchain Capital led this round, with participation from a16z crypto, Bain Capital Crypto, and Distributed Global.  Worldcoin, led by Sam Altman, has now raised a total of $240M, including a $100M ICO in March 2022 led by a16z and Khosla Ventures.


Worldcoin, currently in beta, is aiming to evolve into the largest, most inclusive global identity and financial network.  Its wallet, World App, has about 2 million users across five continents, en route to a target billion users.  Central to Worldcoin’s privacy-centric positioning is The Orb, a biometric device that scans the retinas of users, so they can later confirm their identity online.  


There is certainly some controversy around Worldcoin.  Blockchain Capital partner and lead investor Spencer Bogart tweeted “Worldcoin is quite likely the single most misunderstood project in all of crypto (and that’s saying something). At first glance, it appears to be a noxious combination of hardware, biometrics, crypto and AI.  For good reason, folks get concerned and sensitive when it comes to biometrics— particularly so when you add a dose of crypto”.