Earlier this year, WonderFi Technologies Inc (NEO: WNDR) announced its intention to acquire First Ledger Corporation, the parent of Bitbuy, the first approved crypto marketplace in Canada.
The deal, which ran north of $160 million, puts WonderFi in a better position to further unlock easy and secure access to decentralized finance (DeFi) and crypto.
Benzinga chatted with WonderFi co-founder and CEO Ben Samaroo, early backer Kevin O’Leary, and Bitbuy CEO Michael Arbus on the approval of this consolidation.
Context: At its core, WonderFi is mending the inequalities of current financial ecosystems.
It’s doing so through decentralized finance or DeFi, the technology that allows market participants to lend, borrow and swap smart amongst each other.
Unlike exchanges built on the centralized finance (CeFi) model, WonderFi is non-custodial and there are no intermediaries that tax the system; participants can earn yields or trading revenue for posting liquidity.
Acquisition: Initially announced in January, WonderFi’s acquisition of Bitbuy went through months of compliance work, as the firm had to assist regulators in understanding its value, as well as develop clear frameworks that could be mirrored in other jurisdictions.
As explained to Benzinga, the hold-up lasted longer than expected for two main reasons.
First, this acquisition marks the first time a newly granted crypto entity in Canada had to be reviewed for a change of control where the acquirer was a public company.
Second, WonderFi launched a DeFi product that itself had never been reviewed by regulators.
Ultimately, all Canadian regulators approved the acquisition. The deal closed and both of the companies have raised over $100 million.
Taking Action: With the acquisition of Bitbuy, WonderFi now has access to 400,000 additional users and the same talents that earned the acquiree nearly $32 million in revenue last year from $4.4 billion in transactions.
“We were looking at different consolidation opportunities, starting with a Canadian exchange,” Samaroo said on unifying customer experiences across DeFi and CeFi in areas beyond the firm’s investing initiatives like non-fungible tokens (NFTs) and play to earn gaming on-ramps.
“Bitbuy was at the top of the list, and the management team is key because we wanted to get something that we could grow and scale in new markets.”
Bitbuy’s management is experienced across many jurisdictions and in traditional finance, added Arbus whose career was in global finance at banks prior to operations in crypto mining.
Arbus was sold on the WonderFi deal after learning of their commitment to market dominance and compliance.
“When we met Kevin and the team at WonderFi shared their vision for the unification and collaboration between CeFi and DeFi,” Bitbuy was sold on the proposition, he said.
Paradigm Shift: O’Leary, whose involvement was inspired by clear changes in the regulatory environment, said he upped his allocation in crypto to 20%, the most he can make it.
“The big change in WonderFi that makes me more bullish as an investor is around customer acquisition cost,” he explained. “If WonderFi acquires a customer through the decentralized [side], they can migrate that customer to open a wallet also on the centralized [side] without having to acquire the customer again and, perhaps, without having to go through the Know Your Customer (KYC) process.”
For instance, an individual can hold cryptos like Bitcoin BTC
in their Bitbuy wallet, while they own NFTs on the WonderFi platform.
Given that this dynamic is regulatory approved under the Ontario Securities Commission (OSC), which communicates closely with the U.S. Securities and Exchange Commission (SEC), O’Leary says this is the biggest driver of his increased allocation into WonderFi.
“Bitcoin, Ethereum WonderFi, Bitbuy are all software and [compliant]," he said. “If you’re in the UAE, Brazil, or Switzerland, why wouldn’t you consider these platforms? Why reinvent? That’s why I think they’ll be competitive in opening across other geographies where the regulator is as advanced as it is in Canada and maybe use Canada as a model, too.”
Next Steps: Once the WonderFi and Bitbuy teams are fully combined, attention will be put on platform integrations and seamless sign-on experiences like WonderFi Connect, the function that enables users to toggle between different accounts.
Thereafter, the focus is regional dominance, international offense and community development.
“Often, when brands try to consolidate, you get user attrition due to the forced closure of gaps,” Samaroo said. “We’re keeping the brands separate and we’re going to open up product opportunities that users can access in a couple of clicks, without having to create new accounts.”
O’Leary is playing his part in the international offense by working alongside U.S. Senators like Cynthia Lummis (R-WY) who invited him for feedback on a crypto bill targeting issues like stablecoins, mining with regard for environmental, social, and governance (ESG) criteria and beyond.
“Understanding where the regulators are is even more important than just reading the bill,” he said on expanding Canada’s crypto blueprint to other geographies. “I’m betting that the blueprint will be used in other jurisdictions … and it’s going to be very hard for anybody to catch up with [WonderFi and Bitbuy], given their acquisition costs and customer base.
“Then, I can introduce them across other geographics that I invest in all around the world. For me, this investment is a global play.”