‘Flash Boys’ exchange IEX launches crypto play with new investor Sam Bankman-Fried’s FTX.US

Good morning, Term Sheeters. Fortune’s Declan Harty here, filling in for Jessica. Today: The story behind one stock exchange operator’s plans to push into digital assets. 

Wall Street’s “Flash Boys” exchange is finally planning to venture further into the world of cryptocurrencies.

Eight years ago—before Binance, before the Ethereum blockchain, and even before Bitcoin broke $1,500—IEX Group quietly discussed whether to enter the fledgling crypto markets, CEO Brad Katsuyama tells Fortune

The upstart trading venue’s story had played a featured role in Michael Lewis’ 2014 best-seller “Flash Boys,” and soon after, the exchange was thrust into the national spotlight. Katsuyama was everywhere, from conferences to Congress to CNBC. The company raised $75 million in new funding. And its lawyers were even beginning what would become a two-year-long process to turn IEX’s private trading venue known as a dark pool into a U.S. stock exchange on par with NYSE and Nasdaq

Unbeknownst to the public, IEX was, all the while, also fielding questions about capacity and technical issues in the burgeoning crypto market. Just a few years old, digital assets were largely dependent at the time on “customer-facing apps that weren’t built to facilitate robust trading markets,” Katsuyama says. The need for a more robust financial infrastructure in crypto was quickly becoming apparent. So, the exchange’s executives began to ask themselves whether IEX could get involved somehow with a unique offering. But the company opted to stay the course with just one silo dedicated to the U.S. equity market, partly in fear of over-stretching itself. 

Katsuyama and the IEX team never stopped looking for novel ways to get into crypto, though. In 2021, the exchange runner joined the Pyth Network, a Solana-built market data project. And today, IEX is beginning to plot a grander entrance into the digital assets market with the help of its newest backer: Sam Bankman-Fried’s U.S. crypto exchange darling FTX.US. 

“We’re at the start of the journey together. The market structure is still being defined. Regulation is being shaped. And I think our combined perspective is more valuable than our independent [ones],” says Katsuyama, who is an FTX customer and owns a “spectrum of the most mainstream” cryptocurrencies. “We’re willing to play a role in building the infrastructure that makes sense.”

Terms of the investment were not disclosed. 

IEX, which Katsuyama says is profitable and was not looking to raise capital ahead of the investment, and FTX plan to try and bring large-scale investors into the digital asset securities market in a regulated fashion through the partnership, whatever form it may take. (The companies said they plan to issue more information about it in the coming weeks.) 

Bankman-Fried and Katsuyama both indicated interest while speaking with Fortune in possibly building a new trading venue, should regulators allow it. An IEX spokesperson added in an email that the exchange, along with FTX, is focused on developing “on ramps” for institutional investors into the market, the forms of which will depend on regulatory guidance. 

“Our biggest goals are trying to get to a place where people can access all the digital asset securities that they want through FTX and IEX through a coherent and liquid manner,” says FTX CEO Bankman-Fried, who first met Katsuyama through a mutual investor. “Projects looking to get access to United States investors and liquidity on digital asset securities could use this as a way of doing so.” 

Not all of Wall Street is bound to welcome IEX’s push into crypto. 

While many fund managers and bankers have started to shift their tones around digital assets, there are still plenty of Jamie Dimons and Warren Buffetts out there—especially on the heels of a two-year-long run up in crypto prices. But for Katsuyama, ever the disruptor, the fundamentals behind crypto are here to stay.

“Much like the dot-com bubble, there’s this mad rush in, it pushes the boundary, and there’s a lot of fraud and bad activity. But at the core of that came some of the most revolutionary companies of all time, right? I think the same thing will happen here,” Katsuyama says. “There are companies being built, there are innovations being built, and there are layer-one protocols being built that will be foundational to the next revolution—whether it’s a service-based industry or broader. It’s why we’re involved. This is the future.”

The “next chapter” at Sequoia Capital… Roelof Botha is taking over as senior steward of the venture capital giant that is Sequoia Capital come July 5, succeeding Doug Leone. In a letter posted on Twitter, Leone wrote that Botha, whose investments include Instagram, Square, and YouTube, has had a “keen instinct for innovation [that] has made its mark on our partnership and on our industry.” Leone will stay on at Sequoia as a general partner in its existing funds as well as on the boards of portfolio companies. 

A programming note… The fantastic Jessica Mathews will be back with you tomorrow. It’s been a joy to dive into the market’s plumbing with you on this fine Tuesday, so thanks for reading. If you’re intrigued to learn more, you can follow me through Fortune’s My Favorites and check out my weekly dispatches on all things crypto and fintech with our weekly newsletter, The Ledger. And now onto Jackson for all the deals you can imagine. 

Declan Harty
Twitter: @declanharty
Email: declan.harty@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.


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