Coinbase pursued FTX Europe acquisition as it looked to expand its overseas derivatives business

While acquisition talks never reached a late stage, Coinbase’s interest in FTX Europe demonstrates the growing importance of derivatives to its global business plan as spot trading volumes have tumbled during the bear market.

Derivatives—complex financial instruments that derive their value from an underlying asset such as Bitcoin or Ether—compose a significant portion of crypto trading volumes. In comparison to spot trading, which is based on the current price of an asset, derivatives have proven more popular. In the second quarter of 2023, derivatives volume was six times larger than spot volume, according to the crypto analytics firm Kaiko Research.

With derivatives trading still in flux in the U.S. due to regulatory limitations, major U.S.-based firms like Coinbase and Gemini have launched offshore exchanges over the past year to focus on Asian markets. In August, Coinbase also received approval to begin offering crypto futures, a type of derivative, to U.S. customers, with plans to roll out the product in the coming weeks.

Like the U.S., Europe remains a question mark for crypto derivatives as the region implements its own new set of regulations. Until the collapse of FTX in November, FTX Europe was the only firm to offer a popular form of crypto derivates called perpetual futures, or perps, to the European market, thanks to a key Cypriot regulatory license. FTX initially acquired the entity for $376 million in late 2021.

According to financials of FTX Europe viewed by Fortune, the platform continued to add tens of thousands of users until its parent company’s bankruptcy. The enduring value of its license—which could only be transferred as part of an acquisition—drew interest from various buyers, with the FTX debtors’ estate auctioning off different parts of Sam Bankman-Fried’s once-mighty empire.

Fortune previously reported that parties interested in FTX Europe included Crypto.com, a Philippines-based crypto exchange run by a former Binance executive, and FTX FDM, the Bahamian entity of FTX that’s currently under the control of liquidators appointed by the country’s Supreme Court.

According to messages viewed by Fortune, Coinbase has also expressed interest, both immediately after FTX’s bankruptcy in November 2022 and as recently as early September 2023, with a European executive for the exchange inquiring about the possibility of an acquisition. Coinbase is no longer pursuing the potential deal, according to a person familiar with the talks.

Coinbase has previously made acquisitions in the derivatives space, including the futures exchange FairX in January 2022. “We’re always evaluating opportunities to strategically expand our business and meet with many teams around the world,” a spokesperson said in a statement shared with Fortune.

‘Viable options’

FTX Europe has become a flash point in the firm’s bankruptcy proceedings. FTX acquired the firm, originally founded in 2020 as Digital Assets DA AG, in its bid to expand derivatives services across Europe, as well as to prevent rivals like Kraken and Binance from using DAAG’s white-labeled tokenized stock service.

Although FTX Europe earned healthy profits, the entity became a target of the bankruptcy estate. In July, the FTX debtors—led by former Enron steward John Ray III—launched a lawsuit seeking to claw back hundreds of millions of dollars from FTX Europe executives. The estate alleged that the initial acquisition had been a disastrous business decision, effectively paying $376 million for a $2 million operating license.

While FTX Europe has drawn interest from major crypto firms in recent months, the debtors’ estate has argued an acquisition isn’t feasible. “The FTX debtors’ professional advisors have concluded that there is no realistic possibility of a sale,” a spokesperson said in a statement shared with Fortune in July.

The recent interest expressed by Coinbase—as well as another crypto firm called Trek Labs, according to documents viewed by Fortune—complicates the bankruptcy estate’s stance as it continues to entertain offers. According to a person familiar, the deadline for a proposed sale has been extended from Sept. 17 to Sept. 24, meaning an acquisition is still possible.

“The FTX Debtors are committed to maximizing the value of FTX’s assets to drive customer recoveries,” a spokesperson said in a statement shared with Fortune on Thursday. “As such, the FTX Debtors are continuing to evaluate whether there are viable options for the sale of some or all of the assets of the FTX Europe business. This process remains ongoing.”