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 October 16 – October 22

Eric F. Risley
October 22, 2023

Green shoots?


Confidence and conviction are two essential prerequisites before an acquirer will dedicate the three necessary ingredients, time, attention and capital to an acquisition.  These prerequisites have been strained for some time, largely a self-inflicted wound from crypto’s own ethical and fundamental financial management failings.  Does time heal all wounds?


Perhaps we are beginning to see the answer.  This week one of the most TradFi of traditional finance, the Depository Trust & Clearing Corporation (DTCC), acquired Securrency.  DTCC is a consortium formed and owned by the largest banks in the United States.  DTCC operates as the “keeper of record” on virtually every securities transaction that occurs in the U.S., processing $ trillions every single day.  Does this sound like a blockchain’s fundamental function?  What if every security was represented by a unique form of token?  What if every owner of these security tokens maintained and secured that ownership within their own unique digital wallet using a combination of public and private keys?  You get the drift, crypto is infiltrating TradFi as we speak.


A more complete assessment of the DTCC | Securrency transaction can be found in our M&A Alert which we published yesterday, offering a full assessment of the who, what, and why of the transaction.


Yes, this is a green shoot!


Our team will be at Money2020 this week  Please email if you’d like to meet.