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 9 – October 15

J. Todd White
October 18, 2023

19 Crypto Private Financings Raised ~$151M

Rolling 3-Month-Average: $131M

Rolling 52-Week Average: $185M



Conferences & Events

Architect Partners is co-hosting an event with The Tie and Gemini on Thursday, October 19th at The Tie’s office (link here to register). We will also be at Money2020 (October 22 – 25).



Private financing activity proved consistent this week with 17 financings for the third week running, and healthy proceeds of $151M.  Infrastructure deals continued to dominate.



Selected Highlights 



Membrane Labs, a crypto-lending and trading platform, closed a $20M Series A from a respectable cohort of investors including Brevan Howard, Point72, Jane Street, and Two Sigma. Proceeds will be used to build sophisticated infrastructure to meet institutional needs for spot, derivatives, lending and collateral management activities.  This includes the option to use decentralized settlement using smart contracts as escrow agents to avoid counterparty credit risk, or to opt for traditional “sign and send” settlement through Membrane’s customizable, modular tech platform.



Why Notable?   

2022’s crypto-market implosions largely obliterated lending and prime brokerage capacity for the digital asset markets, leaving a liquidity void that impedes institutional trading and remains largely unfilled.  Membrane hopes to unify the industry’s diverse custody and wallet solutions, and thus facilitate market liquidity with its tech-driven risk management and customizable bilateral trade management on a custody-agnostic settlement network. Their recent financing round stands out with an impressive mix of top tier traditional financial investors with more crypto-focused capital providers.



Untangled Finance, raised $13.5M to expand their on-chain solutions for tokenized private credit. The lead investor, London-based Fasanara Capital, also opened two private tokenized credit pools on the platform to put their mouth where their money is. Untangled’s platform is built on the Celo network, and will extend Ethereum and Polygon using Chainlink’s cross-chain interoperability protocol to create a multichain interoperable credit pool. Untangled is initially targeting fintech lending, such as invoice/trade finance and consumer salary lending, and green infrastructure projects. They offer some innovative tools such as a built-in liquidation engine and credit assessment model to anticipate default risks, as well as auction-based withdrawals to facilitate early liquidity for credit pool investors.



Why Notable?  

Untangled is positioned in the middle of one most anticipated digital asset developments this year. Tokenized asset and collateral management is an extremely hot opportunity, and featured quite prominently at Goldman Sachs’ digital asset event in New York last week. Traditional heavyweights are poised, with JPMorgan executing the first tokenized derivative trade this week on the heels of BlackRock’s tokenized money market fund the week before, both utilizing JPM’s Tokenized Collateral Network, and Franklin Templeton’s own tokenized money market fund launched a few weeks prior.  




Capital focus shifted back toward infrastructure this week, with a sub-emphasis on bridge transactions bringing to market tools that facilitate institutional interest in tokenization, collateral management and liquidity management.