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.

Crypto M&A Snapshot

Week of November 6 – November 12

Eric F. Risley
November 12, 2023

Who are you?  Prove it.


It’s a simple question but surprisingly easy to deceive.  According to Javelin, identity fraud resulted in $43B in financial losses in 2022.


Today’s traditional “prove it” consists of a government-issued ID, a social security number and an account name and password.  That sensitive information resides within thousands of government and commercial institutions, sometimes well protected, oftentimes not.  Breaches are commonplace.


Financial impacts are just the tip of the iceberg.  Far more corrosive is the decline of social trust.  Faking or obfuscating personal identity is a first step to corrosive behavior like election fraud, Social media platform meddling programs, anonymous doxing, proliferation of conspiracy theories, distribution of fake images, etc.


Trust is hanging by its fingernails.


This week, the topic of identity and identity protection highlighted itself with WAME as an acquirer.  WAME is one of many companies that are seeking to use blockchains and crypto assets to create “decentralized identity” systems, immune from the “my identity information is everywhere” problem highlighted above.  Their approach is to assign a unique, non-transferable token to each person.  That token records a set of facts about that individual, which can be validated without accessing the facts.  While we have no viewpoint on WAME’s particular approach, we do have conviction that new approaches to protecting identity are essential.


Trust must reemerge or the path forward is dark.