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 October 30 – November 5

J. Todd White
November 8, 2023

22 Crypto Private Financings Raised ~$94M

Rolling 3-Month-Average: $123M

Rolling 52-Week Average: $182M


Private finance deals showed a modest uptick this week, though remain below both recent and long-term averages for the year.  Teams building infrastructure continue to receive strong investor support.


Selected Highlights 


The rapid emergence of Artificial Intelligence (AI) has met extremes of both excitement and concern. According to some recent findings, the level of concern may be outpacing the excitement, and led President Biden to issue a sweeping executive order on Oct 30. At the top of the list is how to distinguish the provenance of digital content – where is AI involved, and how can we tell if its output is true?


Enter Modulus Labs, a startup at the intersection of AI and blockchain technology. Modulus recently raised $6.3M in seed funding, and aims to deploy zero-knowledge machine learning (zkML) – a variant of zero-knowledge cryptography that can validate the integrity of blockchain transactions without exposing underlying data – into the AI world where the line between reality and artificially generated content is increasingly difficult to distinguish. Modulus is using ZK-proofs to descry the veracity and integrity of generative content by assessing whether AI has been executed correctly.


Modulus emerged from Stanford, and their seed round presents a highly credible roster – led by Variant and 1kx, with participation from Inflection, Bankless, Blockchain Builders Fund, the Ethereum Foundation, Worldcoin, Polygon, Celestia and Solana. The potential applications are myriad, from price discovery in NFT lending to enhanced and scalable security of generative content that minimizes human involvement in the operation of decentralized protocols. The company also has numerous partnerships brewing that include Ethereum-based applications and, based on the angels in their round, we can anticipate similar expansion on other layer-1’s such as Polygon and Solana.


Making AI accountable through blockchain cryptography is certainly an ambitious undertaking, but its importance is hard to understate if AI will truly become as ubiquitous and transformative as many predict. We applaud the team at Modulus Labs for identifying the need and presenting a potentially credible solution. And we hope the confidence shown by their impressive Seed series investors proves well founded.