According to Galaxy Digital, Robinhood’s plan to tokenize stocks in the new Ethereum compatible blockchain could shift trading volumes from traditional exchanges like the NYSE and undermine core revenues from trading fees and market data.
At this week’s ETHCC meeting, Robinhood CEO Vlad Tenev detailed plans for “Robinhood Chain,” Arbitrum Orbit’s Ethereum compatibility layer 2. Blockchain allows users to directly trade derivatives of tokenized inventory on-chain, moving asset transactions outside traditional exchange hours.
TENEV explained that the new token engine, which runs on the Robinhood chain, will provide users with tokenized derivatives of assets, allowing these tokens to be independent or interact with decentralized applications.
By minting “rappers” linked to actual stocks detained by US broker-dealers, Robinhood plans a 24/7 deal first, offering a nearby settlement and a 24/5 deal. The initiative draws on Robinhood’s recent acquisition of Crypto Exchange Bitstamp.
Related: The SEC calls “end regulations through enforcement” and “tokenization” as “innovation.”
Robinhood tokenization brings Assets Onchain
In a report on Friday, Galaxy Digital said that the tokenization movement of Robinhood will directly challenge intensive liquidity and activities that will remove assets from traditional market channels, bring Onchain and offer key exchanges like the NYSE.
“This directly challenges the deep concentration of fluidity and activity that gives major Tradfi exchanges (such as the NYSE) a competitive advantage,” writes Galaxy Digital.
The platform’s architecture reflects a roll-up model like Coinbase’s base, providing full control of the Robinhood sequencer and the ability to capture all transaction fees. Galaxy estimates that Base generates over $150,000 in Coinbase’s daily sequencer fee.
By operating the Robinhood chain sequencers while controlling tokenized assets, Robinhood aims to monetize every layer of its trading stack, from off-chain trading to on-chain utilities.
In particular, the appeal of tokenized assets exceeds 24/7 trading. Programmerism allows for the use of traditional stocks that cannot match, such as using tokenized inventory as collateral for the Defi protocol and automating dividends.
As Galaxy noted, if the incumbent exchange cannot match the utility of the tokenized asset, then there is the risk of becoming “a less functional version of the custodian of the same asset”, pushing more traders onto a blockchain-based platform.
Related: “Everything is lined up” – Tokenization has a breakout moment
Volatility risk remains
However, the 24-hour trading model could introduce volatility risk to retail investors.
Moreover, regulatory uncertainty remains a challenge. Robinhood tokens are only available to EU users, but the Securities and Exchange Commission (SEC) has not commented publicly on the model.
The Securities Industry and Financial Markets Association (SIFMA) has already urged the SEC to refuse to trade tokenized stocks other than the Regulation NMS framework.
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