WonderFi has entered into a definitive agreement to acquire Toronto’s Coinberry, which offers a crypto trading platform, for approximately $38.5 million CAD in WonderFi stock, based on the company’s current share price.
“We’re in the process of creating the largest crypto user base in Canada.”
Amid mounting regulatory pressure and rising customer acquisition costs as a variety of different platforms compete for the same users, WonderFi co-founder and CEO Ben Samaroo expects to see more consolidation in Canada’s crypto space—including from WonderFi itself.
“Some of these platforms, like Coinberry, have done an excellent job of growing their business… but were kind of approaching this point where there’s a lot of players competing for the same users,” Samaroo told BetaKit in an interview. “And so, the consolidation story starts to start to make a lot of sense.”
Samaroo anticipates that WonderFi’s Coinberry acquisition will close sometime during the second quarter, and expects the lead time to be “a lot quicker this time around” after the company faced many regulatory hurdles to complete its $206 million Bitbuy deal last month.
Founded in 2017, Coinberry claims to be “the easiest and safest way” to buy and sell Bitcoin, Ethereum, Litecoin, XRP, and Bitcoin Cash. The acquisition news comes about eight months after Coinberry became the second crypto-asset dealer to become regulated by the Ontario Securities Commission (OSC).
Once the deal has closed, WonderFi will own two of Canada’s six registered crypto trading platforms in Bitbuy and Coinberry. The remaining four include CoinSmart, Wealthsimple, Netcoins, and Fidelity.
As part of the deal, WonderFi will acquire Coinberry’s 220,000-plus Canadian customers, giving the combined firm a community of more than 750,000 users. WonderFi claims this will make it “one of the largest ecosystems of crypto participants” in North America, and establish WonderFi as Canada’s largest publicly-traded end-to-end consumer platform for crypto and DeFi.
“We’re in the process of creating the largest crypto user base in Canada,” said Samaroo. “What that does is it creates a really big stronghold in this developed, well-respected, regulated market, and creates a springboard for us into global markets.”
According to Samaroo, having two licensed, Canadian-compliant crypto platforms under WonderFi’s belt will give the company “more credibility [and] more recognition” from securities regulators and acquisition targets in other jurisdictions, as WonderFi pursues its international expansion plans, which involve moving into Australia and the United States.
WonderFi aims to build a broader Web3 ecosystem by combining three separate segments of the crypto ecosystem: centralized finance—or the kind of crypto trading offered by Coinberry and Bitbuy—decentralized finance (DeFi), through its own DeFi product, and NFTs and gaming.
Amid a competitive sector, where Samaroo claims most companies focus on “standalone” versions of these components, WonderFi views owning all three of these different segments as its differentiator, and hopes to provide a “single unified ecosystem” with single sign-on capabilities to bring them together under one roof.
The company, which trades on the Neo Exchange as ‘WNDR’ and boasts a list of backers that includes celebrity investor Kevin O’Leary, known in part for his TV roles on Dragons’ Den and Shark Tank, made its first foray into the centralized finance space earlier this year with its acquisition of registered crypto marketplace Bitbuy.
For WonderFi, government regulation was a “key contributor” to its plans to consolidate licensed crypto platforms.
Samaroo expects to see more consolidation in the Canadian crypto space particularly because there are “so many” crypto exchanges competing for the same customers—which he says has led to “skyrocketing” customer acquisition costs.
“It’s expensive to acquire customers,” University of Toronto Professor of Finance and blockchain expert Andreas Park told BetaKit. “Regulatory compliance is very expensive, too.”
Park believes that six regulated Canadian crypto platforms is “quite a lot” considering the small size of the Canadian market and the country’s crypto user base. He sees potential for companies operating in the crypto sector to achieve “a lot of economies of scale” by bringing some of these platforms under the same roof.
“As the industry continues to mature, there is going to be consolidation,” Coinberry founder and CEO Andrei Poliakov told BetaKit. “We knew this was going to happen and it’s happening.”
Poliakov expects to see similar acquisitions occur in the Canadian crypto space, agreeing with the other reasons given and highlighting the threat of big international players knocking at the door.
According to Poliakov, Canadian crypto companies need to reach “a certain size” in order to compete in this environment. “Scale will win at the end of the day,” he said.
O’Leary, a WonderFi investor and strategic advisor who sometimes serves as the public face of the firm, views Coinberry’s licensed status as important, but said this deal is “all about” the chance for both companies to achieve economies of scale by joining forces.
“When an industry consolidates, you don’t want to be the last person standing when everybody else is sitting down.”
– Kevin O’Leary
“The economics for the independent exchange gets worse and worse,” O’Leary told BetaKit. “When an industry consolidates, you don’t want to be the last person standing when everybody else is sitting down.”
WonderFi believes that by consolidating and lowering their customer acquisition and support costs, Canadian crypto platforms will be better able to defend their position in Canada against unregulated, deep-pocketed foreign exchanges like Crypto.com, FTX, Coinbase, and Binance.
In 2021, Coinberry generated over $13 million in revenue. Combined with Bitbuy’s revenue over the past 12 months, Samaroo said the Coinberry acquisition will put WonderFi “in the $50 million annual revenue range.”
Despite their similarities, Coinberry and Bitbuy serve two slightly different user segments, says Samaroo. Coinberry caters more to entry-level users through its dealer model, while Bitbuy is capable of serving sophisticated investors through its more advanced marketplace offering.
Samaroo said WonderFi also sees an opportunity to allow Coinberry to source liquidity through Bitbuy’s marketplace. “There’s a lot of efficiencies in terms of how orders are routed, and then also from a regulatory perspective, to have a liquidity provider that is also another Canadian registered platform … is really interesting.” According to Samaroo, many similar crypto-asset dealer platforms are currently sourcing liquidity from unlicensed international venues.
WonderFi also claims that having more volume running through Bitbuy’s marketplace will lead to better prices and safer transactions, as Coinberry’s users will be trading with Bitbuy’s marketplace, rather than a third-party, unregulated exchange.
Acquisition-wise, WonderFi isn’t done. Samaroo said the startup plans to make more acquisitions in the near future, adding that WonderFi “still probably needs one more big Canadian platform to roll into WonderFi” to cross over the 50 percent market share threshold and be competitive globally.
Samaroo described acquisitions as “a key part” of WonderFi’s growth strategy, adding that the company is currently “in talks with multiple other Canadian platforms and international platforms.”
On the acquisition front, Samaroo described targets on the DeFi side—where WonderFi has focused its efforts on building in-house—as “less compelling.” Going forward, WonderFi is more interested in targets on the centralized finance and gaming and NFT side, which Samaroo said the company views as the “highest growth area.”
WonderFi 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 of WonderFi.