WonderFi, CoinSmart, Coinsquare to combine into Canada’s largest crypto trading platform

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WonderFi Technologies Inc. WNDR-T, CoinSmart Financial Inc. SMRT-NE and Coinsquare Ltd. have reached a three-way merger agreement to create Canada’s largest cryptocurrency trading platform in a bid to compete against global giants across the controversial sector for digital assets and blockchain technology.

The deal is expected to be finalized by the end of the second quarter. Pending regulatory, court and shareholder approvals, it would put together nearly $600-million in combined assets under custody from a customer base of around 1.65 million Canadians, according to a joint announcement on Monday.

Upon completion of the transaction, shareholders of Toronto-based Coinsquare will own 43 per cent of the combined company, while Vancouver-based WonderFi will get 38 per cent, and Toronto-based CoinSmart 19 per cent on a partially diluted basis. Users for all three companies will soon be able to invest in equities, place wagers, trade, earn and pay with crypto in a single platform, said Dean Skurka, president and chief executive officer of WonderFi.

The newly combined company is not expecting to change its name to a single banner any time soon. It will have a board of directors comprised of nine members, with four proposed members from Coinsquare, three from WonderFi and two from CoinSmart.

The merger brings to a halt a months-long, considerably heated back and forth between the three companies.

In September last year, Coinsquare announced it would buy CoinSmart for about $29-million in cash and shares. That deal was expected to close by the end of 2022. But in January, Coinsquare announced it was pulling out of the agreement, which CoinSmart said took it by surprise and called “completely bogus.”

Just after that termination, WonderFi alluded to talks of another deal, stating it had “held preliminary discussions with various third parties.” Although WonderFi declined to comment further at the time, CoinSmart said in early February it was willing to seek monetary damages in court to enforce its deal with Coinsquare.

The disagreements came to a “successful end” at a dim sum restaurant in downtown Toronto in late February, said CoinSmart CEO Justin Hartzman on Monday. Arranged by Bobby Halpern, who is described by the companies as a “deal-making architect,” a lunch between the executives of Coinsquare, CoinSmart and WonderFi ended with rough notes on a piece of paper, which later became the legal terms and conditions of their agreement over the next month.

“Who would’ve thought this rare, three-way deal would get done over some sticky rice and shrimp dumplings?” Mr. Halpern said.

The three companies have already been registered with regulators to operate in all 13 of Canada’s provinces and territories. Coinsquare, however, is registered as a dealer and marketplace member by the Investment Industry Regulatory Organization of Canada – the first crypto exchange in the country to do so, as others continue to seek that status.

The combined company will consolidate under Coinsquare’s investment dealer registration with the New Self-Regulatory Organization of Canada, a recent amalgamation of IIROC and the Mutual Fund Dealers Association of Canada.

Consolidation has become a common trend in the crypto sector. Several companies, including two Toronto platforms acquired by WonderFi, merged their operations last year, as the high cost of regulation collided with a global tailspin for cryptocurrencies.

This year, the price of bitcoin has rallied, climbing back nearly 70 per cent amid a macroeconomic environment that could favour crypto over stocks. However, the sector is reeling from the high-profile collapses of FTX Trading Ltd. and Celsius Network LLC, “which is still creating significant pressures,” said Mr. Skurka, attributing it to WonderFi’s struggles with profitability.

Coinsquare, CoinSmart and WonderFi brought in a total of roughly $37-million in revenue last year.