IEX—the fledgling stock exchange started by the protagonists of the Michael Lewis bestseller Flash Boys—is getting ready for its next act.
Coming soon: crypto.
At least that’s the vision of IEX cofounder Brad Katsuyama, who is now linked up with Sam Bankman-Fried, the cryptoworld kingpin and head of FTX.US, which invested in IEX in April.
“We are looking to set a standard for what it means to trade a digital asset security,” Katsuyama tells Fortune. “The potential for this industry is tremendous. It just needs a structure that allows it to scale.”
Details about the plans are not yet clear, but the pair are working together to build a regulated marketplace for digital asset securities, Katsuyama says. What form or shape that takes will depend on clarity from the Securities and Exchange Commission, he says.
The general idea would be to build a regulated marketplace specifically designed for digital assets that are in fact securities—possibly opening up a new on-ramp into crypto for the pension funds, hedge funds, and mutual funds that have so far stayed away. While some of those tokens may be securities legally speaking, many likely bear little resemblance to the Apple and Tesla shares trading on IEX, NYSE, and Nasdaq day in and day out, the IEX chief executive says.
IEX first began looking at how to get into crypto eight years ago, but decided at the time to stick to U.S. equities, Katsuyama previously told Fortune. The company has since entered the crypto market in a limited way, having joined the Solana-built market data project Pyth Network in 2021.
It’s also embracing crypto in other ways, such as a new on-chain messaging and analytics platform called Dispatch that was publicly revealed Thursday. The project, in effect, is a blockchain-built “router” for non-fungible tokens, decentralized autonomous organizations, retailers, and even brands “to send important messages and notifications,” IEX head of Dispatch Byron Sorrells wrote in a blog post.
None of which is to say IEX, which is profitable with net revenues growing more than 50% since 2019, is pulling back from the U.S. equity exchange business. Equities trading is the driving engine behind IEX’s push into crypto, with the steady, reliable business of trading on its stock exchange helping to fund the company’s crypto ambitions as well as other ventures like IEX Cloud.
“Our goal is to make an investor-centric marketplace in equities. I think the same goes on the crypto side,” Katsuyama says. “Ultimately this is really about making sure the end users of the ecosystem derive the benefits of innovation.”
As for what’s next for the company itself, Katsuyama says IEX has no plans of going public any time soon. Asked about a possible acquisition, the IEX CEO said: “If we can further our mission and what we’re trying to do for investors and for the marketplace then I think absolutely it’s something we would entertain. We’re very open about the different outcomes that can occur in the marketplace.”
In the meantime, Katsuyama is expecting more exchanges to look at digital assets in the months ahead—even as the crypto winter lingers on. And while some are bound to do so defensively, others may see what Katsuyama and IEX do: That crypto could very well reshape “what it means to be an exchange.”
And with that… I say thanks. On my first day as an intern with Bloomberg News in the Chicago office some six years ago, my editor told me that this big thing was happening: A company called IEX that Michael Lewis had written a book on was about to find out if the SEC would give it the OK to launch a stock exchange.
I was assigned to the team covering U.S. market structure, a concept that I had spent the prior few months trying—and failing—to understand. So, my anxiety promptly spiked. But what I didn’t know was that I’d go on to become fascinated with this strange corner of Wall Street that I’ve covered ever since, writing about high-frequency traders, Ken Griffin, circuit breakers, the SEC, and oh so much more. So, I only saw fit to chronicle IEX’s newest chapter today in crypto as I prepare for my own: I’m leaving Fortune.
Or, more accurately, I’ve left Fortune.
Wednesday was my last day. Don’t worry, you’re in great hands. Better than mine certainly. Jeff John Roberts, our new crypto editor, will be in your inboxes come next week with more news, updates, and changes to come soon after. Take it from me: My fandom of The Ledger is as old as the newsletter itself, as I first started to read it way back in 2018 when Jeff was among one of its first authors. I’m so excited to see what’s to come from him and the team. But I’d be remiss if I didn’t say—in case it wasn’t clear by now—thank you. I’m so grateful to have had a chance to pop into your inboxes every week with the latest on all things crypto, finance, and tech. It’s been a joy to do so.
I just hope you’ve enjoyed the overuse of alliteration, the occasional bad joke, and the constant anecdotes about my children. I know I have.
Declan Harty
@declanharty
DECENTRALIZED NEWS
Credits 🚀
Sam Bankman-Fried's FTX and FTX.US are both working on new fundraising rounds.
America's largest crypto exchange, Coinbase, had no financing exposure to Celsius, Three Arrows Capital, or Voyager Digital.
House Democrats are working on a new stablecoin bill.
Dubai now has a metaverse strategy that Crown Prince Hamdan bin Mohammed bin Rashid Al Maktoum sees creating 40,000 new virtual jobs.
Debits 🐻
An ex-Coinbase employee has been charged for allegedly insider trading on crypto tokens.
The crypto exchange run by the Winklevoss twins, Gemini, has done another round of layoffs.
NFT giant OpenSea has slashed 20% of its staff.
Peter Thiel-backed crypto lender Vauld has filed for protection from creditors in Singapore.
Senators are unlikely to vote on a major crypto regulation bill this year, says Sen. Cynthia Lummis.
THE MOONSHOT KIDS
"Stuck between NFT pet rocks and a hard place.” Individual investors are, by and large, not in a great place. Financially speaking, that is. Over the course of the last six-plus months, just about everything has been trending down and to the right. Crypto, meme stocks, you name it—it's probably sold off. Is that smothering investors' appetites for risky assets? Not really. The reason may surprise you, though, because it's "about more than just getting rich quick," as the Financial Times' Madison Darbyshire writes. It's also about flat wages, interest rates, housing prices, and so much more.
From the article:
Rent rises have outpaced income growth in most US states since 2001, according to estimates by the Center on Budget and Policy Priorities. And inflation has pushed the cost of living higher in recent months. As low interest rates and heavy debt became a fact of life, relationships with risk changed, experts say. Young investors are less likely to approach speculative financial products as investments with underlying value. Rather, they are inclined to treat them like lottery tickets — probably worthless, but still worth the gamble on a life-changing payout.
“If you had lottery tickets for houses, investors would buy some of those, too,” says Jeremy Grantham, co-founder of the Boston-based asset management group GMO. “There is enormous inequality, and when people get fed up . . . they start to behave in strange and new ways.”
BUBBLE-O-METER
$936 million
Elon Musk's Tesla has offloaded 75% of its Bitcoin holdings just a few months after the CEO vowed not to sell.
THE LEDGER’S LATEST
Crypto investors get a crash course in bankruptcy law—and how they sit at the bottom of the pile by Robert Stevens
Founders who 'cannot be trusted' and a $50 million yacht: New Three Arrows Capital bankruptcy filing sheds light on the crypto hedge fund's epic demise by Grady McGregor
Why is the price of Ethereum soaring? Analyst cites 'two certainties' by Taylor Locke
Bankrupt crypto lender Celsius has a plan to pay back its customers: Mine more Bitcoin by Nicholas Gordon
The crypto winter could last for another 250 days, according to a major digital asset manager by Marco Quiroz-Gutierrez
Ethereum rally continues due to excitement surrounding September 'merge' upgrade by Taylor Locke
Christie's tries its hand at venture capital by Jessica Mathews
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
IF YOU DON’T KNOW, CRYPTO
Ah, what to not know in crypto today? When I started working on The Ledger a year ago, I knew next to nothing about crypto, so I hope If You Don't Know, Crypto has been a help in the few short months we've been doing it. For this, my final week, I give you a strange little "definition" that I recently learned about the meaning of: FTX. Huh? That's right. What does FTX stand for? Think about it. Unless you know, the answer's not abundantly clear like, say, NYSE is. But here it is: FuTures eXchange. (Capitalizations are my addition.) A little underwhelming, no? FTX.US president Brett Harrison had a slightly more fun (literally) take on the name when I asked him about it, though: "Fun Times Exchange."
This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to receive future editions.
