WonderFi, which trades on the Neo Exchange as ‘WNDR’ and boasts a list of backers that includes Kevin O’Leary, has agreed to pay approximately $206 million CAD in cash and WonderFi common shares as part of the Bitbuy deal, which will be the FinTech firm’s first acquisition to date. UPDATE (03/25/22): WonderFi’s Bitbuy acquisition has closed.
WonderFi’s acquisition of Bitbuy has taken nearly four months to close because the deal needed to gain approval from every Canadian securities regulator.
In an interview with BetaKit, WonderFi co-founder and CEO Ben Samaroo said the company saw an opportunity to combine Bitbuy’s centralized crypto exchange with its own decentralized finance (DeFi) platform.
“We saw this opportunity to bring the two worlds together,” said Samaroo. “There’s a lot of benefits to that from not just from a company perspective, but from a user experience perspective. We’re working towards creating a unified customer experience across everything digital assets.”
Bitbuy CEO Michael Arbus told BetaKit that after experiencing a strong 2021 fuelled by rising crypto adoption, Bitbuy had a mix of suitors, but selected WonderFi because it believes in WonderFi’s vision of building a broader crypto community.
Bitbuy became Canada’s first crypto marketplace to be regulated by and registered with Canadian securities regulators late last year. Bitbuy is one of the only six crypto trading companies in the country that are registered with Canada’s securities regulators, alongside CoinSmart, Wealthsimple, Coinberry, Netcoins, and Fidelity.
According to Arbus and Samaroo, WonderFi’s acquisition of Bitbuy has taken nearly four months to close because the deal needed to gain approval from every provincial and territorial securities regulator in Canada, given that WonderFi was a public company with newly launched DeFi product looking to purchase a recently registered crypto entity in Bitbuy.
“That sort of just led to more scrutiny,” said Arbus.
Both CEOs believe the acquisition—and the conversations it sparked among Canadian securities regulators—could constitute a step towards more consolidation in the crypto space and potential DeFi regulation.
In order to complete the deal, the two companies had to work with regulators from across Canada. Earlier this month, WonderFi announced that they had secured the final regulatory approval required to close the transaction from the Ontario Securities Commission, Bitbuy’s principal regulator.
In addition to approving the deal itself, Canadian securities regulators also took a closer look at WonderFi’s DeFi platform, which facilitates access to various DeFi assets and protocols. Some even asked the company to geo-block it in certain jurisdictions while it remained under review.
According to Bitbuy, Alberta and British Columbia have chosen not to limit access to WonderFi’s platform in the two provinces, while other securities regulators have chosen to continue to review it.
WonderFi CEO Samaroo is familiar with the challenges associated with regulatory compliance given his experience as a corporate securities and finance lawyer who has advised the British Columbia Securities Commission, FINTRAC, and other crypto and blockchain companies on regulatory matters in the past.
Bitbuy’s Arbus is also familiar with the impact of regulatory compliance after going through the process firsthand with Bitbuy. “It takes a lot of work [and] it does increase your cost structure significantly,” he said, noting that for some smaller crypto companies, these costs and obligations might be particularly tough to swallow.
According to Samaroo, WonderFi decided to acquire Bitbuy partly because it was regulated.
“With [Bitbuy] being the first licensed marketplace in Canada, and sort of setting that precedent, we’re now having conversations with regulators in other jurisdictions with that as a starting point,” said Samaroo.
He noted that buying a company like Bitbuy, which has achieved much sought after regulation, stands to aid WonderFi’s international expansion plans. WonderFi’s growth strategy involves moving into Australia and the United States. “[In] wanting to take this platform global, regulation and compliance has to be top of mind for everyone,” he said. “Being able to take [Bitbuy] into new markets is going to be a lot easier.”
Amid increasing pressure to become regulated and compliant, Samaroo and Arbus think the WonderFi-Bitbuy deal could lead towards more consolidation in the crypto space. Samaroo cited Galaxy’s acquisition of BitGo as an example of this. In Canada, TSX-listed Mogo has purchased equity stakes in crypto startup players Tetra Trust, which has received regulatory approval from the Government of Alberta to store crypto assets, and Coinsquare, which has sought to become regulated. In its latest earnings report, Mogo noted that the value of its Coinsquare warrants dropped recently amid a broader decline in crypto valuations.
According to Samaroo, this consolidation trend is more focused in Canada because there are “so many” crypto exchanges here, and everyone’s competing for the same customers—which has led to “skyrocketing” customer acquisition costs. That’s not to mention the amount of companies vying to become regulated by securities commissions across the country.
Samaroo acknowledged that the country’s crypto space is “very competitive” but claims WonderFi is “really the only company that covers off DeFi and [centralized finance], and some of these other aspects of Web3 together.” The CEO argues that what you see more often is “standalone” versions of each segment.
“In this business, it’s all about acquiring users, keeping those users, and extracting value from them. I believe that the WonderFi vision solves this big problem.”
WonderFi views owning all three of these different segments as its differentiator, and hopes to provide a “single unified ecosystem” to bring them together under one roof.
As part of this push, WonderFi plans to roll out single sign-on later this year, allowing WonderFi users to access Bitbuy’s platform and WonderFi’s DeFi platform with the same login. According to Samaroo, a common complaint from crypto users involves having to juggle multiple usernames and passwords for various platforms.
In addition to improving WonderFi’s customer experience, the CEO believes single sign-on could be beneficial from a customer acquisition cost perspective.
“Users today must go to a lot of places to stay on top of their various holdings,” O’Leary told BetaKit. “Their coins, DeFi holdings, NFTs, staking products, and more … In this business, it’s all about acquiring users, keeping those users, and extracting value from them. I believe that the WonderFi vision solves this big problem.”
Going forward, WonderFi plans to remain “very active” on the mergers and acquisitions (M&A) front. The company has already inked an agreement to acquire Sun Machine, a play-to-earn gaming and NFT company, in a deal it expects to close sometime during the second quarter.
Feature image courtesy WonderFi and Bitbuy.