| Man With a Plan |
| It all has to do with what Tenev calls the “Robinhood Chain.” |
| His announcement hinted at how Robinhood will compete in this new era of blockchain-enabled finance. It will be able to iterate faster, attract developers, and give software functionality to users once walled off from the everyday investor. |
| This is the moment where financial experiments on blockchains begin their fast track to becoming the backbone of global finance. |
| To understand the significance, let’s get into what exactly happened in Cannes, France, at Tenev’s To Catch a Token event earlier this week. |
| Tenev made a series of announcements on Monday. The first wave of announcements mostly addressed Robinhood catching up to the market. |
| He announced the arrival of Robinhood to all European Union countries, new derivative markets, lower fees for trading, and the ability for U.S.-based investors to stake ETH and SOL on Robinhood. |
| These were all nice to see, but even in today’s blockchain-prohibitive financial system, that’s not exactly groundbreaking. We already see these solutions spreading across various venues with more expansive offerings. |
| What was revolutionary was the three-phase plan he drew up on a chalkboard for the audience – an on-theme visual that echoes a scene in To Catch a Thief. |
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| Tenev presenting at his To Catch a Token event | Source: Robinhood |
| It laid out how, when a customer on Robinhood purchases a share of stock, the purchase runs through the traditional array of backends, brokers, and exchanges for Robinhood to acquire the share. |
| Most of us are already familiar with how this works with legacy trading platforms. |
| But phase one of his plan adds a step to this transaction wherein the acquired share is then sent to what Tenev called “the tokenization engine.” |
| It’s a piece of infrastructure that mints a tokenized form of the share before completing the loop back to the user. The user receives their shares in this tokenized form, versus receiving shares of the asset. |
| It’s an added step in the stock purchase. Meaning the user will hold a tokenized form of the share in their account and enjoy similar benefits to holding a traditional share, such as receiving dividends. It functions as shares always have, holds value as traditional shares hold value. |
| Then, when the customer sells that share, the token gets destroyed. This setup makes tokenizing shares an integral part of purchasing a stock. |
| If Robinhood were to stop here, I’d say that it’s a nice piece of tooling to help reduce reporting and auditing costs. And in doing so, they’ll be improving and reducing costs in the long run. But tokenization is just phase one. This isn’t just a new version of a stock. |
| If it were, users would still be restricted to traditional hours of exchange – 9:30 a.m. to 4 p.m., Monday to Friday. Shareholders wouldn’t necessarily realize any significant improvement beyond a slightly easier reporting and auditing process. |
| But that’s where phase two comes in. |
| In phase two, Robinhood’s newly acquired cryptocurrency exchange Bitstamp comes into play. |
| The exchange opens up the hours during which shareholders can transact. They can sell or purchase tokenized shares of stock at any time of day, on any day of the week. It’s how stocks become tradable 24/7/365. No more waiting for the allotted hours on allowed days. |
| We can think of this as a secondary venue for trading assets when traditional markets are closed – for now – on the weekend. It marries the crypto market that already trades 24/7 with the traditional financial system. |
| That’s pretty exciting, but phase three is where it gets incredible. |
| The Permissionless Chain |
| This is where Robinhood Chain enters the picture. |
| The chain is a layer-two solution on Ethereum that enables near-instant transactions with low fees. |
| The team mentioned they’ll be using Arbitrum’s scaling technology to do this, which is a layer-two Ethereum solution that’s been live since 2021. That means they can tap into Arbitrum’s resource-rich, battle-tested developer team. They aren’t starting from scratch. |
| What Robinhood Chain brings to users is twofold. |
| First, it brings self-custody. That means users hold the tokenized asset themselves. It isn’t in the custody of Robinhood or a broker. There’s no account lockdown or de-platforming possible when you hold the asset yourself. |
| While that isn’t exciting for most traders, self-custody is crucial to unlock the second aspect… |
| The Robinhood Chain is building decentralized finance (DeFi) solutions on the chain. |
| This means tokenized stocks can leverage solutions like lending and borrowing, swaps, investors providing liquidity, or staking yield/dividend yield swap markets. |
| It presents a world of potential new use cases. |
| Having a public and permissionless blockchain creates a situation where developers across the globe can build new applications and solutions. |
| Having this type of environment means Robinhood is positioning itself to iterate at a pace that Wall Street can’t fathom. |
| In such a financial ecosystem, a holder of Apple shares can borrow stablecoins against their stock to go ahead and purchase a home. Or say the stockholder wants to lock in a 5% dividend on their stock for one year to help finance tuition payments for their kid’s education. |
| The chain gives financial assets like stocks greater utility. |
