Shalini Nagarajan

FTX intends to sell its US-based crypto derivatives exchange LedgerX to M7 Holdings, a subsidiary of an options platform operating out of New Jersey.



The bankruptcy estate of Sam Bankman-Fried’s former crypto exchange is expected to generate $50 million from the transaction.



M7 Holdings’ owner, Miami International Holdings (MIH), runs derivatives-focused Miami International Securities Exchange (MIAX).&nbsp;



&#8220;We are pleased to reach this agreement with MIH, which is an example of our continuing efforts to monetize assets to deliver recoveries to stakeholders,” John J. Ray III, FTX’s CEO and chief restructuring officer, said in a <a href="https://www.prnewswire.com/news-releases/ftx-debtors-announce-agreement-with-an-affiliate-of-miami-international-holdings-for-the-sale-of-ledgerx-301807349.html?tc=eml_cleartime">statement</a>.



A hearing to authorize the sale has been scheduled for May 4 before Judge John T. Dorsey of the United States Bankruptcy Court for the District of Delaware, according to a <a href="https://restructuring.ra.kroll.com/FTX/Home-DownloadPDF?id1=MTQ5NDk0NA==&amp;id2=-1" target="_blank" rel="noreferrer noopener">court filing</a>.&nbsp;



MIAX <a href="https://lukka.tech/miami-international-holdings-and-lukka-enter-into-strategic-alliance-tojointly-develop-and-launch-crypto-derivatives%EF%BF%BC/" target="_blank" rel="noreferrer noopener">teamed up</a> with crypto data provider Lukka last year to introduce a suite of crypto derivatives. The deal with LedgerX is expected to enhance MIAX’s crypto footprint.



The auction for LedgerX, previously scheduled for March, took place on April 4. FTX’s US affiliate <a href="https://www.prnewswire.com/news-releases/ftx-us-finalizes-acquisition-of-ledgerx-301407488.html">acquired</a> LedgerX in Oct. 2021 for an undisclosed sum, which opened crypto derivatives trade to local users.



Earlier this year, FTX secured approval to sell LedgerX and <a href="https://blockworks.co/news/ftx-wants-to-sell-ledgerx-japan-and-europe-platforms-fast">sell three other affiliated businesses</a> — while they still carried value — to generate funds to pay back creditors.&nbsp;



Bankruptcy lawyers for FTX said the entities had “solvent balance sheets, independent management and valuable franchises.” At the time, FTX said over 100 parties had shown interest in purchasing one or more of the businesses.



FTX CEO Ray <a href="https://restructuring.ra.kroll.com/FTX/Home-DownloadPDF?id1=MTQ5NDk1MA==&amp;id2=-1">confirmed</a> separately that Miami-headquartered LedgerX operated independently from FTX’s other operations, which were <a href="https://blockworks.co/news/sec-charges-sam-bankman-fried-with-defrauding-investors" target="_blank" rel="noreferrer noopener">allegedly riddled with fraud</a>. FTX is estimated to have more than one million creditors, with the top 50 owed $3 billion.



“My understanding is that LedgerX maintains segregated customer accounts as well as its own books and records in accordance with applicable [Commodity Futures Trading Commission] regulations,” he said.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

FTX To Sell Crypto Derivatives Platform LedgerX for $50M

Cryptocurrency exchange Kraken is reducing reliance on Signature Bank for some key financial transactions.



A Kraken spokesperson said that the exchange maintains a number of different funding methods to ensure clients can deposit and withdraw from their accounts.



“Consumers still have access to a range of payment methods through our other partners,” the spokesperson told Blockworks. “Clients can reach out to the client engagement team to determine which options are available to them.”



Non-corporate entities will be unable to deposit dollars or withdraw them using Signature, according to an email seen by Bloomberg, <a href="https://news.bloomberglaw.com/securities-law/crypto-exchange-kraken-ends-key-transactions-with-signature-bank" target="_blank" rel="noreferrer noopener">reported</a> Wednesday. Clients have until March 15 to make deposits, and until the end of this month to make withdrawals. 



Kraken reportedly told customers that this decision was influenced by recent changes executed by Signature. It isn’t clear yet which banking partner will replace Signature.



Signature didn’t return Blockworks’ request for comment by press time.&nbsp;



Last month, Signature told Binance that it would <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">no longer handle</a> SWIFT transactions worth lesser than $100,000. The US lender signaled intentions to shrink as much as <a href="https://www.ft.com/content/616a6900-43bc-4fa7-bde1-543ae799adfb" target="_blank" rel="noreferrer noopener">$10 billion</a> in crypto-related deposits as the industry faced headwinds last year.



Binance then told customers that support for transactions below the threshold would cease from Feb. 1 onward.



A Binance spokesperson told Blockworks that the exchange was working to find an alternative solution, and that less than 0.1% of its average monthly users were being serviced by the bank.



About 23% of Signature’s $103 billion in customer deposits came from the crypto industry as of November, <a href="https://www.ft.com/content/616a6900-43bc-4fa7-bde1-543ae799adfb" target="_blank" rel="noreferrer noopener">according to</a> the Financial Times. Signature has <a href="https://investor.signatureny.com/pme/press-releases/news-details/2022/Signature-Bank-Provides-Digital-Asset-Banking-Update/default.aspx" target="_blank" rel="noreferrer noopener">said</a> its deposit relationship with FTX and related companies equated to less than 0.1% of overall deposits. 



“We’re not just a crypto bank and we want that to come across loud and clear,” chief operating officer Eric Howell said at an industry conference.



Signature Bank is not being shunned by everyone, though. Notably, FTX’s derivatives arm LedgerX recently <a href="https://blockworks.co/news/ledgerx-ditches-silvergate">decided to replace its banking partner</a> Silvergate with Signature Bank. Although LedgerX was acquired by FTX US, it remains one of the bankrupt exchange’s solvent businesses.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

Binance

Kraken Steps Away from Signature Bank Due to Transfer Limitations

Casey Wagner

FTX’s LedgerX, the only subsidiary of the now-defunct exchange excluded from its bankruptcy and regulatory woes, told customers it will no longer accept wire transfers from Silvergate Capital.&nbsp;



In an email sent to clients Wednesday, LedgerX instructed customers to instead use Signature Bank for wire transfers from March 1 onward.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Trouble in la jolla. <a href="https://twitter.com/ledgerx?ref_src=twsrc%5Etfw">@ledgerx</a> no longer accepting wire transfers to Silvergate Bank <a href="https://twitter.com/search?q=%24si&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$si</a> <a href="https://twitter.com/AlderLaneEggs?ref_src=twsrc%5Etfw">@AlderLaneEggs</a> <a href="https://t.co/QV88FpEwpj">pic.twitter.com/QV88FpEwpj</a>&mdash; Binance Risk Management (@binanceriskmgmt) <a href="https://twitter.com/binanceriskmgmt/status/1630354423984603140?ref_src=twsrc%5Etfw">February 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“Silvergate made a name for itself as the bank of choice for some of the largest crypto companies, most notably working with FTX, which accounted for around 10% of crypto-linked deposits,” research analysts from Kaiko wrote in a recent note.&nbsp;



The switch comes amid a challenging time for <a href="https://blockworks.co/tag/silvergate">Silvergate</a>. In the wake of FTX’s collapse, customers pulled more than $8 billion from the bank, but Silvergate was able to survive by selling assets at a loss — with <a href="https://blockworks.co/news/silvergate-home-loan-bank-advances">help from the Federal Home Loan Bank</a>, a lender backed by private capital that supplies lines of credit to distressed companies.&nbsp;



As of the end of 2022, Silvergate held $4.3 billion of short-term Federal Home Loan Bank advances. Shares of Silvergate, which <a href="https://blockworks.co/news/silvergate-worst-performing-crypto-stock">briefly rose at the end of January</a>, are now down more than 20% since the start of the year.&nbsp;



“Due to its large crypto exposure, Silvergate’s share price moved in line with <a href="https://blockworks.co/price/btc">BTC</a> returns for most of 2021-22. However, its correlation has weakened significantly in 2023 due to growing legal and regulatory risks around the bank&#8217;s dealings with FTX and Alameda,” Kaiko analysts added.



Crypto derivatives shop <a href="https://blockworks.co/tag/ledgerx">LedgerX</a>, acquired by FTX’s US arm in October 2021, has been notably absent from FTX’s bankruptcy filings and other legal proceedings. LedgerX, registered with the CFTC since 2017, has so far escaped unscathed.&nbsp;



Regulators have used the subsidiary as an example of which crypto companies should register with appropriate authorities.&nbsp;



“We require, in permitting LedgerX to operate, that LedgerX comply with a number of conditions,” CFTC Commissioner Kristin Johnson said in a November appearance after the FTX collapse. “Not $1 of customer assets have been compromised, to the best of our knowledge.”



LedgerX did not respond to Blockworks’ request for comment.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

LedgerX

LedgerX Ditches Silvergate as Analysts Downgrade Stock Price

Andrew Vara, the US bankruptcy trustee in FTX’s case, on Saturday filed an objection to the bankrupt company’s plans to sell four of its businesses, arguing FTX has provided “very little information” on what is being sold.&nbsp;



The businesses include crypto derivatives exchange and clearing house LedgerX, custody platform Embed, FTX Japan and FTX Europe.



Vara <a href="https://restructuring.ra.kroll.com/FTX/Home-DownloadPDF" target="_blank" rel="noreferrer noopener">wrote</a> in his Delaware court filing that FTX hasn’t outlined their financial affairs including assets and liabilities of each entity, and that it’s looking to delay this documentation until after the sale hearings.



“Without these filings, there is no information regarding the nature or value assets of the Debtors whose businesses the Debtors seek to sell,” he said.



Vara called for an independent investigation into the businesses before they can be sold, suggesting that “there is serious concern” about them being involved in FTX’s bankruptcy and holding related information.



“The sale of potentially valuable causes of action against the Debtors’ directors, officers and employees, or any other person or entity, should not be permitted when there has been serious allegations of wrongdoing, and no investigation yet into the scope of such wrongdoing, or the persons and entities that may have been involved,” the filing said.



FTX filed for bankruptcy in November, then <a href="https://blockworks.co/news/ftx-wants-to-sell-ledgerx-japan-and-europe-platforms-fast">sought court approval to sell four affiliated businesses</a> on the grounds that they were supposedly solvent and that each was relatively independent of the parent company.



Lawyers for the exchange stressed that they wanted any sale process to be quick, as the business value could decline due to suspended operations. Some 111 parties were interested in purchasing either one or more businesses as of the last update.



Vara also suggested that the sale should not be allowed since FTX insiders have been criminally charged, and their counterparts working at subsidiaries should not be overlooked.



A hearing on the matter is scheduled for Wednesday, Jan. 11 at 9:00 am ET.



Former FTX CEO Sam Bankman-Fried was arrested last month and is currently under house arrest as he awaits his October trial. While <a href="https://blockworks.co/news/sam-bankman-fried-issues-not-guilty-plea">he has pleaded not guilty to criminal charges</a>, his former colleagues Caroline Ellison and Gary Wang have pleaded guilty to federal charges <a href="https://blockworks.co/news/ftx-alameda-execs-plead-guilty-to-fraud-released-on-bail">and are cooperating with investigators</a>. 



US prosecutors are now <a href="https://www.bloomberg.com/news/articles/2023-01-05/us-closing-in-on-bankman-fried-s-inner-circle-with-singh-probe" target="_blank" rel="noreferrer noopener">reportedly</a> inspecting former FTX chief of engineering Nishad Singh for his role in connection with the exchange’s fraudulent practices.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

bankruptcy

FTX Faces Uphill Task To Sell LedgerX, Other Businesses

<div id="highlights-block_61df578a01b44" class="highlights">
 <ul>
 <li>Coinbase is expected to acquire FairX this quarter </li>
 <li>The move shows a growing trend for exchanges to diversify their offerings</li>
 </ul>
 
</div>



Coinbase is buying Commodity and Futures Trading Commission-regulated derivatives exchange FairX for an undisclosed amount, the company announced Wednesday in a <a href="https://blog.coinbase.com/coinbases-path-to-creating-a-robust-and-regulated-crypto-derivatives-market-a1dc71577337" target="_blank" rel="noreferrer noopener">blog post</a>.



Coinbase will initially offer derivatives trading through FairX’s existing infrastructure, but plans to eventually “leverage FairX’s infrastructure to offer crypto derivatives to all Coinbase customers in the US,” the post read.



The acquisition is essential to building out Coinbase’s offerings and meeting client demand, the company said.



Coinbase has <a href="https://cms.blockworks.co/coinbase-2-23b-q2-earnings-exceeds-estimates/" target="_blank" rel="noreferrer noopener">historically</a> reported trading fees as its main source of revenue, but the exchange has been trying for months to diversify its profit streams. In May 2021, the revamped version of Coinbase Prime, the exchange’s prime brokerage service, was announced. 



Expanding into derivatives trading, which is increasingly becoming more popular than spot trading, by volume, offers another opportunity for revenue diversification.



“These products are in high demand from investors who seek to effectively manage risk, execute complex trading strategies, and gain exposure to crypto outside of existing spot markets,” the blog post read.&nbsp;



The acquisition comes as other cryptocurrency exchanges look to expand into the same market. In August 2021, <a href="https://cms.blockworks.co/ftx-us-brings-crypto-derivatives-to-users-with-ledgerx-acquisition/" target="_blank" rel="noreferrer noopener">FTX announced</a> the purchase of futures and options platform LedgerX.&nbsp;



“It’s only natural to want to engage the largest capital market in the world inside the US with that same product through all of our existing institutional and retail customers who want to trade these products,” FTX.US president Brett Harrison told Blockworks at the time.&nbsp;



Coinbase’s acquisition is set to close in the first quarter of 2022. Terms of the agreement have not been disclosed.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
</ul>

acquisition

Coinbase Acquires Regulated Futures Exchange to Expand Derivatives Offerings

Ben Strack

<div id="highlights-block_745669edbce069409888d7015248807e" class="highlights">
 <ul>
 <li>LedgerX has cleared more than 10 million crypto options and swap contracts since its launch in 2017</li>
 <li>Other FTX.US expansion plans include applying for BitLicense to offer spot products in New York and enhancing NFT marketplace</li>
 </ul>
 
</div>



<a href="https://ftx.us" target="_blank" rel="noreferrer noopener">FTX.US</a> is set to acquire the parent company of digital currency futures and options exchange <a href="https://www.ledgerx.com">LedgerX</a>, the company announced Tuesday.



The US affiliate of Sam Bankman-Fried’s crypto exchange FTX will buy the exchange — regulated by the Commodity Futures Trading Commission (CFTC) — as a way to bring crypto derivatives to its US user base.



The acquisition is expected to close in October. The financial terms of the deal have not been disclosed.



LedgerX, which launched in 2017, offers physical settlement of all contracts, block trading and algorithmic trading opportunities for institutional investors. It has cleared more than 10 million crypto options and swap contracts and pioneered the bitcoin mini contracts that enable granular trading.&nbsp;



The combined company will look to create products for retail and institutional traders and will put resources toward developing a strong working relationship with the US regulatory community, specifically with the CFTC.



Hong Kong-based FTX in May 2020 launched its US business, which currently only offers spot trading in coins such as bitcoin, ether, bitcoin cash, litecoin, paxos gold token and tether.&nbsp;



More volume trades globally in crypto derivatives than in spot crypto, as the market is more attractive to many investors from an efficiency and hedging perspective, explained FTX.US president Brett Harrison.



“It’s only natural to want to engage the largest capital market in the world inside the US with that same product through all of our existing institutional and retail customers who want to trade these products,” he told Blockworks.



Instead of spending what could have been years applying for and receiving licenses in this space, Harrison added, FTX.US decided to acquire. LedgerX is classified as a Designated Contract Market (DCM), a Swap Execution Facility (SEF), and a Derivatives Clearing Organization (DCO).



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“They have the relationship with the CFTC, they have a number of licenses, they have an excellent team,” Harrison said. “We have the capital, we have the technological expertise and we have a great platform as well, so it was kind of a perfect fit.”
</blockquote>



FTX.US will first look to offer bitcoin and Ethereum futures and options, which LedgerX currently provides, the executive said. Over time, the two teams will work with the CFTC to bring more products to its platform under the FTX.US brand.&nbsp;&nbsp;



“US crypto derivatives is an incredibly underserved market, and it took time and resources for us to become a regulated entity under the existing frameworks,” LedgerX CEO Zach Dexter said in a statement. “FTX.US has taken the view, which we share, that US regulators are ready and willing to partner on innovative products, and it&#8217;s the responsibility of the industry as a whole to step up and work with agencies like the CFTC.”



FTX.US <a href="https://www.prnewswire.com/news-releases/ftxus-reports-mid-year-trading-results-and-provides-operational-update-301344071.html" target="_blank" rel="noreferrer noopener">reported in July</a> that its average daily volume grew 150 times from June 2020 to June 2021, peaking at $993 million during a 24-hour period on April 22.



Amid the growth, FTX.US has focused on its brand exposure in recent months, <a href="https://www.mlb.com/news/mlb-ftx-cryptocurrency-exchange-partnership" target="_blank" rel="noreferrer noopener">partnering with the MLB</a> and making Shark Tank’s Kevin O’Leary <a href="https://cms.blockworks.co/ftx-partners-with-shark-tanks-kevin-oleary/" target="_blank" rel="noreferrer noopener">an ambassador</a>.&nbsp;



FTX <a href="https://cms.blockworks.co/ftx-closes-900m-series-b-round-valuing-exchange-at-18b/" target="_blank" rel="noreferrer noopener">raised $900 million</a> for its Series B round, valuing the company at $18 billion. Bankman-Fried has said publicly that FTX.US is looking to get licensed where it can, noting that the fundraise would be used to ensure regulatory compliance.



As for further plans to expand FTX.US, Harrison told Blockworks that the business is focused on increasing its retail users and plans to apply for a <a href="https://www.dfs.ny.gov/apps_and_licensing/virtual_currency_businesses/bitlicense_faqs" target="_blank" rel="noreferrer noopener">BitLicense</a> to offer spot products to New York customers.



FTX.US is also working to enhance its marketplace for non-fungible tokens, he added. The exchange <a href="https://cms.blockworks.co/ftx-launches-nft-marketplace/" target="_blank" rel="noreferrer noopener">launched its NFT marketplace</a> about three months ago, and the market has boomed. OpenSea, the largest marketplace in the space, just <a href="https://cms.blockworks.co/opensea-hits-3b-in-monthly-nft-volume/" target="_blank" rel="noreferrer noopener">hit $3 billion in monthly volume</a>.&nbsp;

LedgerX

Newsletter

Blockworks Research