Can Backpack Become the Apple of Finance?
Redefining Financial Services: Breaking Down the Barriers Between Exchanges and Wallets
This report was written by Tiger Research, analyzing Backpack's innovative approach to integrating exchange and wallet functionality, and its potential to revolutionize digital finance through regulatory compliance and technological advancement.
TL;DR
Backpack addresses the inefficiencies of today’s complex financial systems. It merges a regulatory-compliant exchange with a digital wallet into a unified platform.
Recently it launched an innovative perpetual futures trading system with features such as ‘interest bearing perpetual’, ‘auto lend’, ‘cross-collateral subaccounts’ and ‘auto PnL realization’.
Operating with a lean team, Backpack has showcased rapid growth through the success of Mad Lads and Backpack Exchange and raised $17 million in Series A funding in February 2024.
1. Financial Innovation Remains a Work in Progress
Bitcoin's promise of revolutionizing finance through borderless, instant, and intermediary-free transactions has faced practical challenges.
The crypto ecosystem's complexity remains a significant barrier to adoption. Users must master intricate processes including exchange registration and wallet management. The risk of permanent loss from transfer errors, combined with these technical hurdles, has largely confined crypto to experienced users and created a closed ecosystem.
Backpack addresses these limitations by integrating exchange and wallet functionality into a unified platform. This approach is similar to Apple's iPhone innovation of combining previously separate technologies such as communications, music, and internet access into a seamless user experience.
Web3 finance faces three core challenges: complex user experiences, regulatory uncertainty, and entrenched industry practices. Like Apple's approach in achieving complete innovation through integration, Backpack is addressing each of these challenges. This report will analyze these financial innovation challenges and Backpack's solutions in detail.
2. Backpack: All-in-One
Web3's potential to revolutionize finance remains unrealized. Three major obstacles continue to impede progress in this sector: high barriers to entry due to complex user interfaces, regulatory pressures forcing exchanges to exit multiple jurisdictions, and limited innovation in service offerings from new products beyond existing models.
Backpack's strategy tackles these challenges through three core approaches. The platform prioritizes simplified user experience through intuitive interface design. It has established comprehensive regulatory compliance, including licenses in Dubai and Japan, in addition to being the only exchange with authorization for crypto perpetual futures trading in the EU through FTX EU acquisition. Innovation is driven by industry expertise, leveraging talent from FTX, Citibank, Coinbase, and Stripe.
2.1. Streamlining User Experience: A New Approach to Trading
Crypto investors largely progress from simple exchange trading to DeFi services in search of higher returns. Traditional platforms complicate this journey by either separating exchange and wallet functions or creating cluttered interfaces with excessive features.
Backpack simplifies crypto investment through a unified platform, allowing users to trade coins and interact with DeFi protocols in a single app. The platform's layered design separates basic trading on the main screen from advanced features like yield farming and liquidity provision in an 'explore' section, accommodating both novice and experienced users.
Backpack Exchange also streamlines fund management by consolidating all transactions under one account. This eliminates the friction of traditional platforms that require separate transfers for spot and futures trading, similar to managing multiple bank accounts.
Backpack's efficiency gains are measurable: futures and spot trading operations require just four clicks, compared to ten or more on conventional exchanges. Similar improvements extend to collateral management and fund transfers. This streamlining represents a significant advance over traditional platforms' fragmented product interfaces.
Backpack also streamlines margin trading by automating wallet creation and collateral management. The platform automatically recognizes all user assets as collateral, providing immediate trading access. This balance of automation and flexibility serves both new and experienced traders.
2.2. Perpetual Futures Trading
Backpack enhances perpetual futures trading, a crypto-specific derivative that differs from traditional stock margin trading, with an innovative new system.
At the core is Backpack's Liquidity Fund, a specialized pool, that centralizes all trader profits and losses. When a trader profits $50 by buying Bitcoin at $200 and selling at $250, the Liquidity Fund pays out this gain. The fund functions as an insurance system, balancing payments between traders with opposing positions.
Backpack enhances this foundation with its Virtual PnL Realization Mechanism. Unlike traditional exchanges that force settlements of unrealized profits and losses, this system introduces virtual lending and borrowing concepts. Traders can manage their positions without forced settlements, and importantly, this approach doesn't negatively impact their margin ratios.
The platform's dual safety system suspends additional borrowing at 100% utilization and reverts to continuous PnL realization if the liquidity fund depletes. A multi-million dollar liquidity buffer provides additional system protection.
The system particularly benefits basis trading. For example, when Bitcoin trades at $50,000 in spot markets and $51,000 in futures, traders can capture the $1,000 spread through simultaneous spot purchases and futures sales. Backpack makes this strategy more efficient by keeping profits in their original cryptocurrency form instead of forcing conversion to dollars. Traders can also earn yield on their collateral, enhancing overall returns.
These innovations prevent exchange fund manipulation while optimizing trading conditions. The platform maintains flexibility by offering traditional real-time settlement for institutional investors. Since its beta launch in January, Backpack Exchange has demonstrated its effectiveness, processing over $250 million in trading volume across just three perpetual pairs within 24 hours.
This system sets a new standard for crypto derivatives trading by maximizing capital efficiency without compromising safety measures.
2.3. Strategic License Acquisitions
Regulatory pressures are reshaping the crypto exchange landscape. Leading platforms like Binance and KuCoin have exited key markets due to compliance challenges - Binance withdrawing from U.S. and European regions, while KuCoin suspended European services following anti-money laundering violations. Backpack differentiates itself by prioritizing regulatory compliance.
In Dubai, Backpack has secured a Virtual Asset Service Provider (VASP) license from the Virtual Asset Regulatory Authority (VARA). As one of the first exchanges to receive full market licensing under VARA's new regulatory framework, Backpack establishes a strategic foothold for both Middle Eastern and global market expansion.
Backpack has achieved key regulatory milestones in Japan, becoming the Japan Virtual Currency Exchange Association's first new member since Binance's approval two years ago, before FTX's collapse. As a Type 2 member, Backpack is pursuing full exchange licensing despite Japan's rigorous regulatory framework.
The $32.7 million acquisition of FTX EU and its MiFID II license positions Backpack as the only platform authorized to offer perpetual futures trading in the EU starting Q1 2025. This comes as major competitors Binance, OKX, and Bybit exit European derivatives markets.
These regulatory advances extend beyond market expansion. Successfully navigating strict regulatory reviews validates Backpack's stability and reliability. In today's post-FTX environment, such regulatory compliance is crucial for establishing market trust.
3. Backpack’s Growth Engine: Fast and Simple
Backpack's growth stems from an unconventional origin. Starting as a Solana NFT project, the company lost $14.5 million—88% of its corporate funds—during the FTX collapse in November 2022. Under Armani Ferrante's leadership, the company adopted "cockroach mode," a minimal-resource strategy that proved its resilience.
This crisis shaped Backpack's lean organizational structure. Small, elite engineering teams of under 20 members per product drive innovation more efficiently than the hundreds or thousands employed by traditional financial institutions. This focused approach enables rapid development and reflects Backpack's mission: simplifying finance through technology.
Mad Lads, launched in April 2023, proved a strategic catalyst for Backpack's growth. The project topped NFT charts across all chains in its first week and revitalized the Solana ecosystem. As Solana's largest NFT community today, Mad Lads has been instrumental in Backpack’s initial growth and continues to strengthen its market position.
In February 2024, Backpack raised $17 million in Series A funding at a $120 million valuation, with Placeholder VC leading the round. This investment validates Backpack's approach and supports its continued expansion.
4. The Future of Digital Finance: Backpack’s Vision
]Backpack is evolving beyond a crypto exchange to bridge traditional and digital finance. By drawing talent from Citi, Stripe, and State Street, the company is building sophisticated financial products that connect established and emerging financial systems.
The company's technology sets it apart. Working with Solana's Squads team on account abstraction, Backpack has developed enhanced security protocols, transparent asset verification, and institutional-grade trading infrastructure. These advances help meet the growing crypto demand among younger investors.
Backpack's global expansion targets markets representing over 95% of world GDP. Beyond existing approvals in major markets, the company pursues additional credentials including Japan's crypto asset exchange and Type I financial instruments license, along with EU MiFID II investment firm qualifications.
Challenges remain: complex regulations, security risks, and industry trust must be addressed. Yet Backpack's growth potential is supported by increasing demand for compliant platforms and rising institutional interest in innovative financial services.
The company's focus on compliance, technological innovation, and strategic market presence positions it to shape digital finance's future. This approach to transparency, security, and trust creates a foundation for sustainable growth in an evolving financial landscape.
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Disclaimer
This report was partially funded by Backpack. It was independently produced by our researchers using credible sources. The findings, recommendations, and opinions are based on information available at publication time and may change without notice. We disclaim liability for any losses from using this report or its contents and do not warrant its accuracy or completeness. The information may differ from others' views. This report is for informational purposes only and is not legal, business, investment, or tax advice. References to securities or digital assets are for illustration only, not investment advice or offers. This material is not intended for investors.
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