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 September 4 – September 10

Michael S. Klena
September 13, 2023

26 Crypto Private Financings Raised ~$188M

26 Crypto Private Financings Raised ~$188M

Rolling 3-Month-Average: $141M

Rolling 52-Week Average: $211M


Segment Overview

Creeping up toward the averages in both amount raised and deal count.  Still running below but on the right path.


Selected Highlights 

Story Protocol raised $54MM in a Series A.  Led by a16z, they join a busy cap table of at least 16 investors.  Story Protocol focuses on intellectual property (IP) in the creative arts.  The protocol uses the blockchain for tracking and transparent provenance of artists work.  


Why Notable?  The largest raise for the week with $54MM from a new firm that had with $300K seed funding in May.  Larger, earlier raises are the exception these days, but have noted a few more in the past month. Additionally the investors are a mix of notable individuals and notable firms.


ZEEBU raised $25MM with Bankai Ventures leading the investment. ZEEBU has a very particular market, creating a loyalty token and a quasi stablecoin to be used between telecom carriers and the wholesale voice market.


Why Notable? Sector specific stablecoin is a novel use of the still relatively new stablecoin.  There has been numerous white papers touting a corporate coin for large firms to move funds internally, and this is the next step by enabling a select sector to use it between each other.  


Brine Fi raised $16.5MM at a post money valuation of $116.5MM.  Brine Fi is a zero knowledge proof decentralized exchange (DEX).   Pantera led the round, with at least six additional investors.


Why Notable? Notable for several things, starting with the valuation.  Overall trading volumes have cratered the past year, so a newly launched DEX attracting this valuation is a bit surprising.  I follow the exchange segment closely, and am of the view that consolidation is coming as we still have hundreds of exchanges chasing a fraction of the volume.



Trading and infrastructure remains the main segment.  Over the past few weeks we have been seeing more infrastructure for creatives (like this week’s Story Protocol) starting to expand the potential launched by NFT’s with the maturing of the offering.



We will be at Singapore Digital Asset Week + Token 2049 (Sept. 10-21); and Mainnet (Sept. 20-23).  If you will be there, let’s schedule time to connect.