Robinhood Tokenization May Undercut NYSE Liquidity, Galaxy Warns
Robinhood’s plan to tokenize shares on its new Ethereum-compatible blockchain may shift buying and selling quantity away from conventional exchanges just like the NYSE, undermining their core revenues from buying and selling charges and market knowledge, based on Galaxy Digital.
At the EthCC convention this week, Robinhood CEO Vlad Tenev detailed plans for “Robinhood Chain,” an Ethereum-compatible layer-2 on Arbitrum Orbit. The blockchain will let customers commerce tokenized derivatives of shares immediately onchain, shifting asset buying and selling exterior conventional alternate hours.
Tenev defined {that a} new token engine working on the Robinhood Chain will present customers with tokenized derivatives of their property, enabling them to self-custody these tokens or work together with a decentralized utility.
By minting token “wrappers” linked to actual shares custodied by a US broker-dealer, Robinhood will supply customers near-instant settlement and 24/5 buying and selling at first, with 24/7 buying and selling deliberate. The initiative leverages Robinhood’s latest acquisition of crypto alternate Bitstamp.
Related: SEC ends ‘regulation through enforcement,’ calls tokenization ‘innovation’
Robinhood tokenization brings property onchain
In a Friday report, Galaxy Digital mentioned that Robinhood’s tokenization transfer removes property from conventional market channels and brings them onchain, immediately difficult the concentrated liquidity and exercise that give main TradFi exchanges just like the NYSE their edge.
“This directly challenges the deep concentration of liquidity and activity that gives major TradFi exchanges (e.g., NYSE) their competitive advantage,” Galaxy Digital wrote.
The platform’s structure mirrors rollup fashions like Coinbase’s Base, giving Robinhood full management of its sequencer and the flexibility to seize all transaction charges. Galaxy estimates Base generates over $150,000 in each day sequencer charges for Coinbase.
By working the sequencer for Robinhood Chain whereas controlling tokenized property, Robinhood goals to monetize each layer of the buying and selling stack — from “offchain trading to onchain utility,” the report mentioned.
Notably, the attraction of tokenized property extends past 24/7 buying and selling. Programmability may enable makes use of like utilizing tokenized shares as collateral in DeFi protocols or automating dividends, options that conventional equities can’t match.
As Galaxy famous, if incumbent exchanges can’t match the utility of tokenized property, they danger turning into “custodians of a less functional version of the same assets,” pushing extra merchants to blockchain-based platforms.
Related: ‘Everything is lining up’ — Tokenization is having its breakout second
Volatility dangers stay
However, the 24-hour buying and selling mannequin may introduce volatility dangers for retail traders, who might get up to sharp value strikes exterior common hours.
Furthermore, regulatory uncertainty stays a problem. While Robinhood’s tokens are solely obtainable to EU customers, the US Securities and Exchange Commission (SEC) has not commented publicly on the mannequin.
The Securities Industry and Financial Markets Association (SIFMA) has already urged the SEC to reject buying and selling of tokenized equities exterior the Regulation NMS framework.
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