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 23 – October 29

Eric F. Risley
October 29, 2023

Talented, engaged software developers are the lifeblood of our future.  In fact, a blockchain and its associated reward tokens are nothing more than an exposed, bare foundation.  Each blockchain must attract the time, talent and vision of software developers to build useful applications (dApps in crypto nomenclature) or that foundation is useless and valueless.  This is the same dynamic as the emergence of other software development platforms such as the mainframe, PC, game console, client-server, cloud, mobile device, and the metaverse headset.  Applications must be built upon these foundations to have value.


Historically, to the mainstream person, crypto is associated solely with the token and more specifically, participating in speculation of the value of the token.  Okay fine, nothing all that different than purchasing ownership (equity) in an early-stage company.  However, what has been different is the virtual sole focus on token price as evidence of success vs. measures reflecting the use and effectiveness of the underlying product(s) and associated business(es).  That must change and is changing, however, it’s time to move from speculation to investment.  


Investment mindset begins with a vision of a use case and value proposition, is followed by building the associated dApp, and then the hard work of attracting users and scaling to become meaningful.  It’s the software developer that is integral to starting this cycle.  The more engaged software developers, the more use cases and value propositions are ideated, built upon and tested.  


Right now, like it or not, crypto is back to the basics, in its search of use cases and value propositions that justify the efforts to build these many bare foundations.  The good news is that according to the Electric Capital Developer Report, as of October 1, 2023, there were 19,279 active developers building software on the top public blockchains.  However, according to Statista that represents a minuscule 0.7% of global software developers, simply not enough and demonstrates just how nascent crypto remains.  


We’ve spent our careers helping to build early-stage industries and believe that blockchain and associated tokens are both evolutionary and revolutionary.  We also believe that it’s time for a shift of emphasis to valuable use cases with proof of value measured by real use, not just token trading volume or price.  Make no mistake, token trading and value are very important, it’s just time to shift the mindset to the underlying fundamentals that create both.


So why this topic today?  Attracting and training software developers to build upon blockchains is the theme.  This week Rise In acquired Blockbeam, both dedicated to this aim.  Both, working in partnership with various blockchain protocols, have built curricula to teach both fundamentals and more technical skills to both college-level and professional software developers.