Mergers and Acquisitions - TOKEN2049 Singapore 2025

All right. Um, let's get into it. Shang, I'm going to start with you. Um, you've just seen an acquisition from Falcon X. Let's start with a breakdown of how that happened, why they did it, and how that's been going for you.

Yeah. So my background is um used to run a hedge fund called Ledger Prime which I work with Joe uh at the time multi strategy hedge fund. Um in 2023 uh I launched uh a company with Josh Lim called Arblos Markets. We were a crypto derivatives OTC firm principal trading. Um at the time post FTX post Genesis there was a gap in the market where we felt that we could fill uh basically a lot of the dealers previously blew up um and there was a gap in the derivatives market right like Josh and I both came from the derivatives world spent a lot of years in traditional markets uh but as well as crypto and so we move very very quickly um relaunch our contacts uh Docker X is one of our first partners uh investor as well as capital providers.

Uh and we made it basically a land grab uh for you know market share and and volumes and and clients right and so I think we were able to move very quickly. Um Falcon at the time was just starting to build out their derivatives efforts. Uh traditionally they focus a lot on the OTC spot markets but as we know options markets and traditional markets are usually three, five, 10x the size of spot markets, right? And so a lot more opportunity, a lot more revenue to be generated in derivatives markets. And so we initially worked together um partnered um and it went well.

And so 2024, you know, fast forward um year and change into the partnership, we're kind of at a crossroads, right? Do we now go independent and really blow up, raise a massive round, raise a lot of balance sheet? Um and say for Falcon Ice, right? Do they bring it inhouse? Uh do they, you know, look to internalize the P&L themselves as opposed to splitting it with us?

And you know, I've been on the FX team since the beginning and and and same as Josh. And so it made sense ultimately. I think we reached a point where we realized that a lot more competition uh traditional markets or you know participants are coming in a lot more other OTC desks at the time and we felt that we would rather be part of a call it larger pie than you know kind of stay in our lanes right. So ultimately um the stars aligned um it was a fair offer and we decided to just completely go in-house with you know Falcon X.

Gotcha. So K you are on the other side of it which is basically buying out startups right from a Jup perspective. Um you want to talk about how you've done some of these in the recent past and why?

Yeah absolutely. So uh for people who don't know Jupiter is a D5 super app on Salana. We're the largest D5 protocol over there. Uh and one of the main ways that we've grown, especially over the last 12 months, uh is through acquisitions. I think we've done at least six that are public and another one or two that are not.

Uh and in doing so, the team has gone from like 30 people up past like 110 people or so. And we've added at least five new business lines that we did not have before. Uh so it's really been like a critical part of our growth strategy largely because we realized we can maybe learn how to do new products, right? Like everyone in DeFi right now is experiencing this horizontal uh expansion of course and we can learn how to do it ourselves and we're pretty fast learners but we're never going to be as good at learning this or as fast at learning it as the best in the business are and so that's really kind of dictated where we're looking at acquisition strategically.

Gotcha. I think you know I want to double tap on the as fast aspect of it right like some of these products have joined Jump and they've scaled fast.

Yeah. you want to share the extent of which

basically all of them have. So, one of the unique advantages that Jupiter has, not to like uh overly sell Jupiter or anything, but we've aggregated a lot of attention, right? We were the dominant DEX aggregator on Salana, the dominant spot trading venue. We have the number one pers and so on and so forth. And so, we have all this user attention and all this distribution.

So, when we can plug in new companies, they're able to scale really rapidly. So, uh we bought a company called Sonar Watch. Shout out to my guy, uh Genesis, who's the founder there. Awesome dude. uh you know they were ranging between thousands to tens of thousands of users I would guess uh and then they joined we're able to plug them into juke.

ag/portfolio AG/portfolio and then in the last two months they've had more than 3 million wallets connect and look at their portfolio right so that's I don't do math in public but it's something like you know 100 or 1000x kind of increase and so that distribution is makes us really attractive for founders to want to come to us as well it's one of our real benefits above just the capital that we can offer

um chillang have you seen similar scale of economy once you joined Falconex

yeah the end of the day it's about balance sheet right especially as a customer serving business, right? You need Well, one thing about crypto that's been different from traditional markets and traditional PBS is, you know, capital efficiency, right? Crypto to large part has been extremely capital inefficient, at least compared to traditional markets. Um, part of that is because there's just less cash historically been available sloshing around within crypto, right? Um, especially post FTX, post Genesis and everything.

uh like unclarized lending and and credit in general has largely you know disappeared um post that era right and as a customer serving business it's really about providing balance sheet right you want to pro you know provide portfolio margin um and you need that with with a large balance sheet and so as especially you know for us at the time providing OTC derivatives via isdas um and then you know if you are going to be registered in the US as a swap dealer becomes extremely capital efficient uh and you need a very large balance sheet and so we knew we have to go upstream um and Falcon X obviously you know being a large larger balance sheet provider uh it just made a lot more sense

what I'm hearing is there's two big levers and joining forces one is distribution and the other is capital right um what do you think a startup should be exploring when they're trying to join forces with third parties right because you've been through that decision-m process yourself um assuming a startup is preparing for an acquisition or they have an offer on the table. What are the hygiene factors either of you guys would suggest they look through?

Yeah, that's a good question. I think um you you want to make sure you have maximum flexibility, right? I think there's a lot of mistakes that startups make when they first start out. Like it seemed it it feels good to be able to raise money. It feels good to want someone to partner with you and be a customer or provide you capital, but you have to make sure that the terms set you up for the long term.

I think a lot of startups make the mistake of just signing up initial engagements or partnerships or customer like like for example projects make all these token deals out the gate, right? And it ultimately does hurt them in the long term uh because they're locked in. And so you want to be very cognizant that whatever you're signing up for sets you up not just for the immediate traction and engagement and revenue but actually enables you to scale right because at the end of the day whether it's VCs whether it's partners whether it's customers like they all have their own um call it like motives right and so that that's something that you just have to be very very careful for right like and so for us at the time we made sure that we didn't have anything locked in for too long. It was a one-year engagement. It was a 50-50, you know, P&L split.

Um, and we felt that it was a good kind of testing period where we could grow out of if we needed to.

I think on our end when we talk to founders, the nonobvious consideration uh is as a founder, you have to know yourself a little bit and know how big your ego is. Uh, because if you are getting acquired, especially by a company like Jupiter, we have a very particular way of doing things. because we have like a clear brand strategy, a clear product strategy and so forth. And for some founders, you know, you have to be able to subjugate your own needs to the needs of the the greater whole. I think we've been quite founder friendly in the ways that we're able to let people be really autonomous in their product strategy and so forth.

But uh there are some people, you know, that just don't work well with that kind of uh fashion and they they see the money or they see it as an escape route in some fashion and they're not actually able to convert because they are not able to kind of put that ego at play or at the very least get that cultural fit uh to happen. Gotcha. Um I want to talk to you guys about the capital allocator side of it because historically crypto has seen very few exits in the form of acquisition, right? Um do you guys get a sense that VCs now see M&As as a way of exits in crypto? Like does that change how they think about things?

Probably a little bit on the down like on the lower end of the return spectrum perhaps. Uh a lot of the deals that we've seen, not to, you know, speak about our deals specifically, but just talking with folks in the industry, you know, investors are oftentimes just looking at money back. Uh and maybe that's like half cash, half tokens of the acquiring project. Uh so it's uh maybe it reduces a little bit of the downside risk now that there are larger revenue generating products that can be buyers in this market. Uh but I don't know how common uh of attack it actually is.

And the honest truth is that there's just so few businesses in crypto that generate real revenue. there's very few businesses that are actually attractive like acquisition targets unless you're a company that's really trying to scale into new dimensions. So yeah, it's I think it's harder but uh perhaps on the margin it's increasing.

Yeah, I would I mean I would agree. I think in general crypto's been very very fragmented, right? Um there's been a lot of money. It's reflective of the amount of capital, especially for venture capital that's flowed into the space over time. And what that causes is just a lot of money going to projects that maybe hasn't discovered like product market fit or the TAM of the overall industry or subindustry they're in just isn't very large.

and you just see, you know, 10 companies doing the same thing or same product um that have been able to raise money and survive for a few years, but the ultimate TAM or the product just isn't very large, right? And so, uh ultimately, I think over one or two cycles, allocators, investors realize this and at that point where these startups can't raise another round, then they have to look for options. I think this cycle more than previous cycles where we've had some time to realize this and discover this that's where we're seeing potentially more you know acquisitions and and mergers etc because there there is no other choice either you die or you find another home right so

so um sh I want to go into a specific acquisition and ask you for your gauge of why it happened um that's the derbit coinbased one right because you you've been in the derivative side for a while um how do you think that came through together and the reasoning behind Sorry, sorry. Which

the derbit acquisition?

Oh, the derbit. Yeah, I think it happened. It it's reflective the regulatory regime we are in, right? I think the acquisition probably would not have happened under the previous administration, right? I think um it got significantly derisked because Derbit is a derivative offshore like exchange, right?

and and so there's a lot of risk potential risk associated with that kind of platform for a publicly listed US company like Coinbase. Um in the current administration where whatever you want to call it deregulation or regulatory clarity um it does open the floodgates and just kind of opens the doors for competition everywhere. And so I think you know Coinbase has always wanted to continue to grow their derivatives markets for all the reason I said earlier that derivatives markets are just inherently much much larger than spot markets right but there's clear rules and regulations in the US about how you can offer derivatives to US especially retail markets right and and so um under the current regime I think that got derised and deret being the leader in options and derivatives uh glo globally. Um, it felt like the right time for them to go after that.

Gotcha. Um, Kosh, I want to get to the other side of it. When you probably negotiate on behalf of where you work at, there's there's a huge token component of it, right? It's it's not always equity that you guys negotiating for. Um, how does that feed into how you evaluate the company and the kind of outcomes that you are optimizing for?

Like,

it's funny. it ends up being a little bit like uh when you're fundraising. Uh quite honestly, you have to bring that same kind of like energy and pitch and tell that growth story to get the founders very excited. Uh it gets even more complicated when the target uh of the acquisition has their own liquid token already because then you also have to basically go to their community and try to help sell the idea because you'll be converting the tokens one to one and you don't want a bunch of instant sell pressure. Um so it certainly gives you much more leverage.

It also puts you in a much more uh how should we say difficult kind of like storytelling mold which is why folks like decentralized.co are so helpful uh in times like that. Uh but yeah it does kind of change the calculus from something that's more like an accounting spreadsheet backroom deal into something that is more you know crypto Twitter forward and discord town halls and so on and so forth.

Um are there like internal processes that you follow when you put together an acquisition because there's always the information leakage side of it. there's always the getting an offer and counternegotiating elsewhere side of it. So, how do you guys maintain hygiene around that process?

I mean, at the risk of uh giving away the game here, we're not super hard on the negotiating side. Uh we have found over time that the amount of money that we might be able to save in a harder negotiation is uh truly like marginal and can be thrown away relative to the upside if the founder and the rest of their team stay along for a long period of time are very excited about the work that they're doing and rather than kind of cashing in and checking out are actually like switched on and trying to amplify things. Um so I will say like our process is extremely founder friendly if there are any founders in the room that are looking for a new home. uh we really do not like you know the lawyers come in at a very very late stage. The commercials are are quite simple to do.

Uh there's obviously due diligence on like the technology that we're acquiring and some parts of the team but uh it's much more kind of like instinct and uh trust driven based on the product uh the community quality the product quality etc rather than like a formalized due diligence process for us.

So we're about halfway through the panel and I think that the latter half is going to be more forward looking. So one of the themes that we're seeing a lot and I'm sure Shilang you're seeing this a lot is DAPs as a source of permanent capital. Um are you seeing them coming through as a source of acquisitions in web 3 right now?

Yeah, I think you know there's been um a couple and I think there be many many more. Um one of them was some scientific medical device company. Um it was turned into a Bitcoin treasury. Uh and that was recently um acquired. Right.

I think as you're evaluating these, you know, treasuries and and dats for acquisition. Um I I think some of the newer I think that's a very interesting sav because some of scientific actually has a real business. Uh it wasn't just like a carve out uh they threw away their old business, you know, clean up their cap structure and raise their like it had real debt that they kept on the balance sheet. That's why it persistently even after they launched traded at a discount to NAV um and actually has a real device company uh that it kept on the balance sheet and continue to operate independently of the Bitcoin treasury. So it's a very unique example.

Uh so there's actually inherent value outside of just the Bitcoin that it was holding. Um but I think for the other DATs, yeah, I mean I think you're starting to see many DATs start to trade at a discount. uh I think it's clear parallel where there's going to be a winner take all per asset or category uh and the rest I think generally probably gets you know acquired or merged or rolled up. there's already DATs being launched and capital being raised for these DATs to specifically roll up uh other like digital asset treasuries, right? So, I think people see the writing on the wall um and they are waiting for opportunistically when the markets do turn and they do trade at significant discounts to roll out these stats.

So I think one of the things I've heard is people are looking for yield on the underlying and they try to buy companies with revenue so that the revenue can be used to buy more of the Bitcoin or ETH or Salana, right? Um do you guys think that that's a realistic possibility or do you think that that's just a pitch?

I can only speak for Salana ecosystem kind of dats because we've uh talked to a lot of them. Uh and yeah, I do think that yield is a very real source. as a source of differentiation for Salana itself because there's a native staking yield of around 6 and a.5% and given there's actual revenue generated by the network and those numbers can go up to north of 7 and a half% uh so it's a real differentiator relative to other assets I believe uh and in our position as Jupiter we've been approached by many folks about ways to maximize yield I think one way to kind of view salana treasury companies in particular is as kind of hedge funds where what they're actually trying to do is maximize yield returns more so than just hold an asset on the balance sheet and kind of pray that it goes up. Uh, and especially as more competition comes on the play.

I think there's at least five major Salana Dats. You might know better than me how many. Um, they're all looking for ways to outperform and simply holding the assets on the balance sheet or native staking is not going to get them all the way there. Uh, so yeah, I I think that yield uh and competitive search for yield is going to be a very clear differentiator among all of the major debts. Yeah, I think you know what we're starting to realize post the initial treasuries is you you need like a ample liquid secondary market in the stocks actually to continue to do you know ATMs and continue the flywheel right it's not as easy as it sounds where okay now I raise a bunch of money and it's going to trade at a premium and I can just you know sell shares and raise capital easily and continue the flywheel I think people overestimated actually how difficult it is actually in the secondary market uh to have enough actual demand and liquidity to enable you to do an ATM uh and sell shares and raise capital and continue to fly away, right?

And so that's been the source of difficulty for many many treasuries uh post launch. Um and so the next thing they have to do is well how do you organically generate revenue outside of just selling you know equity uh to enable you to continue to you know buy the you know asset right and so even at that point like that in itself probably won't be a differentiator anymore because everyone's going be looking for yield and obviously the ones that are able to sustainably generate more yield probably stands out but incrementally you know if it's only 50 bids or 1% difference maybe it doesn't make a ultimate like huge difference right in terms of even narratives and so then what what is next right well maybe it's you can uh organically work with different projects uh to build the actual ecosystem you're representing so maybe it's like Salana maybe you know you have an advantage in that you see new projects you build and work with the teams organically to actually help them. Uh and so there's maybe different narratives plays in that regard other than just, you know, I'm just staking or liquid staking and that's it, right? So what I'm hearing is hypothetically that's will be an exit strategy for a lot of the private startups, right? You're basically getting them directly on an exchange like if these trade at a high premium because let's say they acquired a hot startup, right?

Yeah. I acquisition I don't know as much as like partnerships and deploying capital and perhaps I'm sure that it'll be like private LP type deals being struck between protocols. Again, I can only speak for Salana and uh and some of the DATs. I think that's certainly a possibility. Uh and so yeah, I think that it's incredibly bullish for the DeFi ecosystems for DATs that are able to raise and keep that capital in those DATs without getting swallowed up by, you know, Tom Lee and Sailor and the rest of them.

So I have an open question for both of you guys. You mentioned the word revenue right now. Now if you look at the big acquisitions that happened one is bridge the other is what like stripe did one more both of which were like the other was privy right

neither of them have sufficient revenue to value them at what they were acquired for so what do you think happened there like you know

yeah I mean again I can only speak from our perspective a number of the companies that we acquired uh had no revenue like we're basically zero uh so the main reason for acquiring them is just to build out capabilities to maybe get some new audience and some new market or something like that. Uh I like I say I think for a lot of crypto companies in particular it's less a spreadsheet exercise and more of like an org chart exercise. uh it's a lot more aqua hires than pure acquisitions like you might see in tradi at least right now as more companies actually generate sustainable revenue and have kind of defensible modes and so on then I think that starts to change and I'd be particularly excited and be looking at uh major centralized players like Robin Hood Coinbase Toro etc as they come on chain and want to make a real play there's a chance that they start to value startups more on the revenue side and what they can actually add there uh but right now the industry again at least long is a little bit too immature for that kind of rigorous financial analysis.

Yeah, I don't think it's too different from what you've seen in traditional markets, right? In the sense that companies get acquired all the time, you know, they don't have a lot of revenue or part of market fit, but it's an aquire or it's a specific specialty or vertigo uh that they acquire in company, you know, values, right? and and so that that's fine, but you you do still see crypto companies that are generating a huge amount of revenue that get I mean Der is one but then Hidden Road and and Ripple is is another one right I think you know what happens afterwards who knows but clearly you know Ripple have a massive balance sheet which is needed to grow and scale a prime brokerage which is what Hidden Road was and Hero at the time was already generating you know tens of millions of revenue and so That seemed like a natural fit, right?

All right. Um, I want to know some forward leaning predictions from you, right? What are some startups that you guys think will get acquired in the next two years?

I mean, we're we're a buyer, so it's hard for me to to say we're having like active uh conversations with the few. Um, but I do think uh that distribution is at a key is at a real premium these days. And so anyone that has uh you know a well-developed customer base that's loyal and sticky even if they don't have much revenue or TVL or any of the other traditional metrics I think is really exciting for folks. A lot of the especially a lot of the DeFi protocols are very strong on the capital and technology side and not so great on the attention side. Uh so finding teams that you can work with that are really able to quickly garner that attention even if it's like a spike and it goes back down are interesting.

So if I had to give a general category, there are a lot of highquality teams right now on Salana building launchpads whether it's for memecoins or ICM startups or anything else like that and most of them you know they kind of go up and then they kind of go right back down and I think a lot of those are ripe uh for acquisition.

Yeah, I think for me I just think about vertices right without naming specific companies. I think um a lot more institutions are entering the space and I think a quick way for them to scale is to scoop up cryptonnative companies that maybe don't have the necessary scale at the moment right so the categories are probably you know custody and prime brokers and OTC desks like liquidity providers that can basically plug and play very easily into a larger franchise that has the balance sheet and distributions the traditional institutional world I think you'll see a lot more acquisitions by traditional call it asset managers or investments banks that scoop up cryptonnative firms of that nature right um the other I think is defi uh I think as there's defi and regulatory clarity uh that's an area that I think traditional firms have obviously very much underinvested it or looked at because in the previous regime it's just one it's much smaller but two uh it's an area that they haven't been able a touch, but as tokenization or as DeFi and liquidity and centralized liquidity moves to decentralized liquidity, uh I think that's an area that a lot of institutions will want to play catch-up in very very quickly. Um so you can see perhaps centralized organizations within crypto scoop up you know decentralized institutions and then going up the chain you might see traditional institutions even um you know scoop up uh you know dexes or or defy projects right coach I think kosh you speak to several institutions right through what kind of things are they looking for when they look towards you know the web3 native uh talent pool right now from an acquire perspective, right?

I think it's often times uh onchain expertise. Uh so a lot of these trading tools, these kind of niche trading tools are actually in high demand, I think, because they bring an understanding uh that others don't have. Uh a lot of it's also on the infra side. So on Salana, it's not always so easy to land transactions. So teams that have really developed an expertise in transaction landing, managing slippage and so on, I think are are quite interesting uh to some of them.

Uh but mostly I think they're trying to look at the APIs that they can integrate. they're still maybe a little reluctant to come off the shelves at a at real size rather than small two three person teams maybe help run an internal validator or something like that. So in conventional markets there's the term hot potato. It's basically when a firm is acquired, sold off to another and then it gets sold off again, right? Do you do you guys see that happening in web 3 with the you know with with the kind of financial aation that either DATs or tokens allow?

And I think to do that the acquired company inherently actually needs to generate like revenue because if you acquire fun of something and it doesn't really have much if it you you did it just for aqua hire or something specific um you probably can't necessarily you know sell it or dump it on someone else right I think you actually need a real product and it needs to grow and over time maybe you spin it back out right so I think there's probably fewer examples and in crypto. Um but um there probably will be, you know, at some point.

Any views from you, Kosh?

No, I think that's right. I agree.

All right, I think that's about it. Uh we can wrap up. Cool. Thanks, guys.

Thank you all very much for listening.