DEHORNED UNICORN: The Superhero-Swyftx merger is over

The deal to merge share trading platform Superhero and crypto exchange Swyftx, which was supposed to create a fintech unicorn, is over.

Superhero founders John Winters and Wayne Baskin are resuming control of their business as Swyftx grapples with the fallout from the collapse of US crypto exchange FTX and concerns of money laundering by US regulators at market leader Binance.

Winters, Superhero’s CEO, announced the demerger this morning .

“After discussions with Swyftx’s leadership and its board, we came to the decision that demerging is in the best interests of both Superhero and Swyftx, our teams and our customers,” he said.

“The volatility in the market as well as the current regulatory environment has made it increasingly difficult to achieve the initial vision that inspired the merger earlier this year. Superhero will return to being independently owned by myself and my co-founder Wayne Baskin.

“We thank Alex, Angus and the Swyftx team for their support over the last six months and wish them all the best for the future.”

Superhero’s existing investors, including Nick Molnar and Larry Diamond, cofounders of BNPL Zip, plus Regal, Wilson Asset Management and Ophir, are once backing the business in its management buyout.

The Superhero – Swyftx merger was announced in June as “the country’s first digital and traditional finance powerhouse”, valued at $1.5 billion. The two fintechs continued to operate their separate brands and platforms

Both companies were founded in 2018, with Superhero launching its trading and superannuation platform in 2020. It was the baby brother in the deal, with around 200,000 customers compared to Swyftx’s 600,000.

Crypto headwinds

But in a torrid year for cryptocurrency, Swyftx has been forced to make job cuts twice, shedding 74 staff in August, amid warnings from cofounder Alex Harper of an “extended period of economic uncertainty”, and then another 90 staff earlier this month, nearly halving the workforce at the Queensland fintech from around 320 in July to 170 now.

Swyftx reportedly still owed SuperHero more than $50 million as part of the merger, and had been looking to raise additional capital. The company has seen its after-tax profit drop by $12 million – around 25% – last financial year amid plummeting valuations for cryptocurrencies.

Harper, Swyftx’s CEO, said the end of the merger was “a disappointing outcome” but the right one amid ongoing uncertainty for the crypto sector.

“Ultimately, we took this decision in the best interests of both Superhero and Swyftx, as well as their customers,” he said.

“The policy environment has changed significantly since we announced the merger and neither party has been able to realise the vision of the merger in any meaningful way. We currently face a scenario where there might be no realised benefits to customers from the merger until 2024 at the earliest.

“Under these circumstances, we felt it best to focus on our core offering. The decision puts Swyftx in a strong position and frees us up to focus on consolidation and growth opportunities in digital assets.”

Putting aside plummeting cryptocurrency values, and broader concerns about the safety and security of crypto exchanges, the sector is also facing increased Australian government regulation in 2022, alongside custody rules to keep Australian investments onshore.

And corporate regulator ASIC has also raised concerns around equities brokers dabbling in crypto offerings, with ASIC commissioner Danielle Press issuing a warning in August about the growth in unregulated crypto-assets over recent years.

ASIC said it was concerned some brokers have, or plan to offer crypto products alongside shares and other regulated financial products through their trading apps. which may give investors a false sense of security, leading them to believe crypto-assets have the same protections as regulated financial products .

“Crypto-assets are high-risk, volatile and complex. Brokers should think very carefully before offering crypto-assets through their share trading apps,” Press said.

“The differences in risks and protections must be made clear to investors. We expect brokers to do the right thing by their clients.”