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 November 6 – November 12

J. Todd White
November 17, 2023

26 Crypto Private Financings Raised ~$90M

Rolling 3-Month-Average: $119M

Rolling 52-Week Average: $175M


Deal flow picked up slightly again this past week though total proceeds remain steady and modest at $90 million.


Selected Highlights 


Tokenization and stablecoins are having a bit of a moment in the sun.  High-profile prognostications like Larry Finke’s clarion for the coming age of tokenization have been reinforced by numerous legitimate applications, including among the largest financial players.  BlackRock tokenized one of its money markets funds on JPM’s Onyx blockchain as collateral in an OTC derivatives trade with Barclays.   Citi has piloted internal tokenized deposits to transfer client liquidity between branches and has used digitized tokens with Maersk and a canal authority as an alternative to bank guarantees and LOCs in trade finance.   


Stablecoin initiatives are also numerous, including PayPal’s PYUSD built by Paxos, Midas’ new U.S. Treasury-backed tokens to increase yields for the DeFi community, and Deutsche Bank and Standard Chartered’s SC Ventures using the Universal Digital Payments Network to test on-chain stablecoins and CBDC-based interbank transfers as an alternative to SWIFT messaging.


Amidst this buzz, Agrotoken, an Argentinian startup, announced a pre-Series A round led by Visa.   Agrotoken uses a platform built on Ethereum, Polygon and Algorand to tokenize agricultural commodities.  Its current round solidifies a collaboration with Visa that began in 2022, and follows an agreement penned this summer with Banco Galicia to use AgroTokens as collateral for agricultural loans – an intriguing use of tokenized digital collateral to access Argentina’s rich agro-assets as a stabilizer against the Peso’s penchant for hyperinflation.


Stablecoins promise fast and frictionless payments, a means of storing and transferring value that can be insulated from cross-border frictions, and access to alternative assets and commodities without the inherent FX and inflation volatility of fiat and fiat-based instruments. Long-lauded use cases seem to be finally taking shape, and investment support for these initiatives presents another example of capital flowing to teams building infrastructure in the down market.