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FTX buys stake in "Flash Boys" exchange

Lucinda Shen
Apr 5, 2022
Illustration of a dollar bill being broken up into binary code
Illustration: Sarah Grillo/Axios

It’s a collision of traditional finance and the crypto world.

On Tuesday, Crypto exchange operator FTX US announced a strategic investment in IEX Group, the stock exchange made famous in Michael Lewis’ 2014 book, “Flash Boys.”

Why it matters: Crypto proponents believe everything will be on the blockchain one day. This is a notable step forward for both companies as they seek to step into the heavily regulated (and therefore historically avoided) area of security tokens.

Why it’s happening: To IEX and FTX, the deal is not only about combining operational know-how, but also about swapping expertise over engaging regulators.

  • "We have expertise in digital assets, and they have expertise in being a securities marketplace," FTX CEO Sam Bankman-Fried tells Axios. "You put those together, and we're optimistic that we can work constructively with regulators to build out a digital asset security token marketplace."
  • IEX faced its fair share of pushback from regulators in the 2010s for its novel model that introduced "speed bumps" aimed at deterring high-frequency trading.

You may have a lot of questions about what the structure of this partnership may look like for the two companies — so did I. So did Bankman-Fried and IEX CEO Brad Katsuyama, for that matter.

  • Regulators in the U.S. are still deciding what tokens are considered securities on a case-by-case basis, leaving a lot of grey area for operators in the space.
  • "What shape that takes will ultimately be the regulator's decision, and we'll be flexible in terms of how to operate inside of whatever structure that they decide," Katsuyama says. "Building an on-ramp for tokens to be a security, I think that's incredibly important."

Deal details: This is IEX’s first round of primary capital since 2014.

  • While IEX and FTX are not announcing the terms of Tuesday's deal, it is likely to be larger the $101 million, given it requires regulatory approval.
  • This is also a minority stake in the business.

Taking a step back: While its cause is noble, IEX has struggled to gain market share in an industry dominated by incumbents. As of Monday, it held 2.5% of trading volume market share.

  • Outside of the U.S., FTX has already been offering tokenized stocks. The regulatory roadblocks have made it difficult to offer the product in the U.S.
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