Crypto exchange Coinbase is acquiring FairX, a derivatives platform regulated by the U.S. Commodity Futures Trading Commission (CFTC), a move that could open the door for Coinbase to offer “encrypted derivatives products” in the U.S., critical to expanding Coinbase’s offerings and meeting customer demand . The acquisition is subject to customary closing conditions and reviews and is expected to close during the first quarter.

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Coinbase intends to provide compliant encrypted derivatives trading

Although FairX is not very well-known, it has a characteristic: it has been regulated by the CFTC.

According to the official blog, Coinbase believes that crypto assets are relatively mature as an asset class, and many experienced investors in the world have deepened their journey into the crypto market, so a healthy, well-regulated derivatives market is critical to long-term success .

And the acquisition of FairX, a CFTC-regulated derivatives exchange, represents the next step for Coinbase toward creating the robust trading environment investors are looking for. Coinbase plans to bring regulated crypto derivatives to market through the existing partners of FairX, which serves as an important infrastructure to provide crypto derivatives to all crypto customers in the United States. Make the derivatives markets more accessible to millions of customers by providing an easier-to-use user experience.

Deep and liquid derivatives markets are critical to the functioning of traditional capital markets, and derivatives are in high demand by investors seeking to effectively manage risk, execute complex trading strategies, and gain exposure to crypto assets outside of existing spot markets. Therefore, the development of a transparent derivatives market is a critical turning point for any asset class that will open up further participation in the crypto economy for retail and institutional investors alike.

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Coinbase Diversifies Revenues and Adds a "Great Member"

Coinbase has historically relied on transaction fees as its main source of revenue, but the exchange has been trying to diversify its profit sources since 2021.

Currently, Coinbase operates in more than 100 countries, and its products can be divided into 3 main lines of business:

• For individuals: Coinbase, Wallet, USD Coin

• For Business: Prime, Commerce, Exchange

• For developers: Cloud, Connect, WalletLink

(Prime: enables institutional investors to buy, store, and trade crypto assets at scale; Commerce: enables businesses to accept crypto payments using the Coinbase Commerce platform.)

Looking back at historical data, Coinbase's revenue in 2020 reached $1.3 billion, but this figure pales in comparison to its 2021 financial performance. The company reported $2.2 billion in revenue and $1.6 billion in net income in the second quarter of 2021 alone. This money comes from three different sources of income:

The first is the trading income of retail and institutional investors. Coinbase charges transaction fees ranging from 0.5% to 3.99%, depending on the payment type, user country of residence, account type, transaction value, etc. In Q2 2021, Coinbase reported retail transaction fee revenue of $1.8 billion and institutional transaction fee revenue of $102.4 million.

followed by subscription and service revenue. The $102.6 million in revenue includes custody fees, blockchain rewards, interest income, and other types of services.

The third source of income is the sale of crypto assets by Coinbase. The company may sometimes sell its own assets to customers and record this as revenue. In the second quarter of 2021, this revenue was worth nearly $195 million.

It's not hard to see that the company still relies heavily on transaction fees for its revenue, but it has had early success in adding other revenue streams. For example, it increased revenue earned among institutional investors such as hedge funds and family offices from $8 million to $102.43 million in one year.

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many competitors

However, Coinbase is not the only crypto exchange entering the derivatives space.

In October 2021, FTX.US, the U.S. subsidiary of crypto exchange FTX led by Sam Bankman-Fried, completed the acquisition of LedgerX, a CFTC-regulated crypto derivatives trading platform. (Provide Bitcoin and Ethereum derivatives transactions)

Launched in 2017, LedgerX has a controversial history. In 2019, the exchange’s co-founders Paul and Juthica Chou were placed on administrative leave following a dispute with the CFTC. LedgerX had announced the launch of a bitcoin futures product at the time, but later had to retract its announcement because the CFTC did not provide the company with a license. LedgerX has since changed management and today has a Derivatives Clearing Organization (DCO) license, a Designated Contract Market (DCM) license and a Swap Execution Facility (SEF) license from the CFTC.

As planned, FTX.US will initially enable LedgerX to continue serving existing clients under its own brand. But over time, FTX.US will integrate LedgerX under its umbrella and plan to offer new products.

Brett Harrison, president of FTX.US, said in a statement: "Global crypto derivatives trade more than spot crypto because the market is more attractive to many investors from an efficiency and hedging perspective. The acquisition marks an important milestone for [FTX's] rapidly growing US business and is a key part of our strategy to bring regulated crypto derivatives to our US user base. We believe our technical capabilities, product portfolio and integration with LedgerX will be enhanced Our ability to offer innovative products to all U.S. crypto traders. We are excited to take this step and work with U.S. regulators to ensure compliance with the existing derivatives licensing regime."

Singapore-based Cryptocom announced in December that it had acquired Nadex and Small Exchange from London-based financial services group IG Group for $216 million. Once the transaction is approved by regulators, Cryptocom will be able to offer derivatives and futures products to its US users.

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.

risk warning:

According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.