Vlad Tenev on Robinhood’s Bold Move into Crypto, DeFi, and Ethereum L2s

How can you get people in the US excited about putting stocks on blockchains? You get these questions like, why is it better than traditional stocks that are offchain? You already have things like Robinhood. It's easy. Robinhood has close to 26 million customers. You can trade 24/5. Maybe it's not 24/7, but it's pretty close. But I think where the possibilities really start to multiply is if you can get these illiquid assets and construct the mechanism for all of them to be put on chain, and you get that liquidity and the real-time trading that has been historically reserved only for cryptos and public stocks.

Thanks for having me. And you're probably the only person who's ever said my last name correctly.

Totally. That would have been big on its own. Let's get into the tokenized US stocks for Europe. Currently European investors can already get access to US stocks through Revolut and other fintechs and brokers. What's so special about having stocks be tokenized?

I would think about the EU launch as serving two purposes. Number one, EU customers wanted exposure to stocks. We've been live in Europe with our crypto business for a little bit over a year. While they love crypto, they want exposure to US assets as well. We sharpened our pencils because we have both these businesses, and we figured out that the time to market and the speed for launching a blockchain-based offering was actually significantly faster than going the traditional route. That got us thinking that in Europe we have the ability to demonstrate what Robinhood itself could look like built entirely on blockchain technology. From a user standpoint, it will look very similar to traditional US stocks. The blockchain technology and plumbing will be under the hood, with some minor differences from what typical competitors offer. In particular, it's 24/5 trading, which not many competitors have been able to figure out how to do. But where it starts to get really interesting is when we start plugging it into Bitstamp, which is when 24/7 trading becomes possible. At that point, the stock tokens start to behave like other cryptos, like Bitcoin and Ethereum. Phase three, full blockchain non-custodial integration, is when you get all the integrations to DeFi. You could imagine swapping, collateralized lending and borrowing, and self-custody, which would be very powerful for stocks because it would untether your stock tokens from any individual brokerage or crypto provider.

The way it works is the token is a derivative, and the underlying is held by Robinhood. What the user gets is a derivative backed by the real share.

The intent would be similar to a stablecoin structure, where shares are held in custody. The only time a traditional share that's custodied would be liquidated is if a corresponding token was actually burned. These edge cases are a bit more complicated, but if it was liquidated in a DeFi protocol, the token itself wouldn't actually be burned. The mechanism for minting and burning tokens would go through Robinhood, at least for the time being.

It's the same underlying technology that powers the public shares. I wrote an op-ed in the Washington Post in January, and the lead was that you have these companies that aren't going public. Some have essentially decided they'll never go public unless forced. They can raise tens of billions, maybe hundreds of billions, from private markets. That wasn't possible before. So they have no corporate need to go public. But retail investors are left out of those gains, which keep accruing to a smaller selection of wealthy insiders. The days of being able to invest in an IPO like Microsoft or Apple and get huge public market appreciation seem harder to come by. If you want to invest in the AI economy as a retail investor, your options are quite limited. You see gigantic companies like Tesla and Nvidia, and that's kind of your exposure to AI. Using the same technology that powers tokenized public stocks, we can tokenize pretty much anything as long as we can acquire the traditional shares. This will be particularly interesting for the US. The question is how can you get people in the US excited about putting stocks on blockchains? You get questions like why is it better than traditional offchain stocks? You already have Robinhood, it's easy. But where possibilities multiply is if you can get these illiquid assets and construct a mechanism for them to be put on chain, getting liquidity and real-time trading historically reserved for cryptos and public stocks.

That's basically it. I should clarify that the private shares we gave out were essentially a gift, a way to demonstrate the technology. They're not yet able to be traded, so customers will have to hold onto them. Since we announced last night, lots of private companies have been reaching out and asking when they can get their own private stock tokenized. We'd like to open this up much wider, figure out how to allow trading in the near future, and make it available to lots of private companies so people can invest in the most innovative and valuable private companies. Over time, since the initial private stocks will be secondary transactions, buying stock from existing shareholders, this can migrate to being a tool for companies to raise primary capital. Imagine an entrepreneur starting a business; this could be a mechanism for quick and easy capital. They wouldn't need to do the dog and pony show of pitching venture capitalists. They could go on Robinhood, push a button, submit information about their business, and get immediate access to a global pool of investors. If we can deliver that, we'll have more startups. The costs and friction to creating startups would dramatically decrease. I was an early-stage entrepreneur. You have to do two difficult things simultaneously: build a product people want and fund the business. Early-stage funding takes a lot of time, so you have two full-time jobs. If we make that easier, we'll have more startups.

There are existing mechanisms where startups can issue tokens, like ICOs. Historically, that's been a separate process from a normal fundraising round. In the US, you've had to ensure US persons don't participate, and it's been used largely by crypto companies for token launches. What I'm envisioning is these processes merge. If you want to go the crypto-native token route, you could, but you could also have traditional financing with traditional shares and documentation. We can just be a utility that helps tokenize those shares.

It's going to be similar to the Arbitrum chain but not a rollup on Arbitrum. It's a layer 2 using Arbitrum's technology.

At first, the stock tokens are on Arbitrum, but the intent is for it to begin as a layer 2 immediately upon launch.

At the end of the day, there wasn't a layer 2 out there with the same specific goals as ours. We want to build the first chain optimized for real-world assets. We have stocks, and eventually options, futures, tokenized traditional instruments, and traditional versions of native crypto assets. There will be a lot of convergence. We'd like to tokenize a wide range of real-world assets. That's how we distinguish ourselves. I talked to many chain developers who all say their chain is the best for degen traders. I think that market is fully served, but no one is building chains optimized for real-world assets. The great thing about Arbitrum's technology is we have control over the chain. We can develop and customize as necessary. We don't want to depend on any third party. Having control over the chain's development while maintaining decentralization was very attractive. Many other layer 1s don't have as robust an ecosystem for having your own layer 2. On the Ethereum side, it's the ecosystem, the ability to create a layer 2 with control, and interoperability is important. There are many assets already on Ethereum, and there's a significant network effect. Over time, we'd like these tokens to be on all chains. We want a first-class experience where you get early features and great support. We have the Robinhood wallet, and we'll build a great experience for the tokens. Since it's crypto, customers can switch to other wallets, and over time there will be robust bridges and interoperability. But at least the parts we control, we can ensure a first-class experience.

No plans at this point. We haven't thought much about it. The focus is on making stock tokens work really nicely. I wouldn't be opposed if it helps solve a specific problem, but we have no imminent plans.

Right now, the stock tokens on Arbitrum are quite fast. But there will be new things to unlock, like DeFi swapping. If we want to offer products like KYC or unique features, having our own chain would be important.

Since we've rolled this out, there has been excitement from policymakers in the US. They saw the launch. One goal was to show what's possible if we unleash crypto technology and let it merge with traditional financial services. We've been talking about this in crypto for a while, but there hasn't been much product that people can use in a nice form. It's compelling to see real product, Europeans enjoying access to US stocks with a seamless experience. The US will follow along quickly. We've been having many conversations on tokenization. We believe the SEC has the mandate and power to do this without additional legislation. The SEC's crypto task force had a tokenization roundtable where our crypto GM participated. They're excited about tokenization. The problem is the US is a mature market with existing infrastructure. The incentive to upgrade is less than in a market with nothing. It's like how China went from no trains to high-speed rail, while the US gradually upgraded. We have medium-speed rail, and the cost to upgrade may not be worth the incremental benefit. You also have many stakeholders worried about their businesses if stocks go on blockchains. You're seeing that with stablecoins too; banks are nervous. That's the trap of being at the frontier; entrenched interests can hinder innovation. But we're okay with that because if there's better infrastructure, people will embrace it. I want to be at the technological frontier. We were the first to popularize investing on a mobile device. There were entrenched companies reliant on web interfaces that didn't want a world where people trade on their phones. That was an opportunity for us. Besides building an exciting future, there's a real risk of getting stuck with what works now. If we don't embrace it, someone else will figure it out and eat our lunch. We'd like to eat our own lunch.

We had an investor day in New York last December where I talked about the three arcs behind Robinhood. They build on each other. The one-year arc is being number one in the active trader market. Active trading is our bread and butter. We have some of the lowest pricing in the industry, so we should be number one in market share across equities, options, crypto, and futures. But not everyone actively trades, so that market is relatively small. The five-year arc is being number one in wallet share for the next generation. We want to go beyond trading to be the place where you keep all your money, assets, and process all financial transactions. That includes our credit card, retirement advisory, and our acquisition of TradePMR, a human advisor platform. The goal is for you to never have to take money out of Robinhood. It should be where you custody assets, put money in, and we help with everything else. The long-term arc is being the number one global financial ecosystem. That takes what we do in the US for retail and expands it globally and to business and institutional. We expect that third arc to be the majority of the business in about 10 years. We think it'll take that long for international to comprise half of our revenue and for business and institutional to surpass retail. The chain plays into both. Blockchain technology is global by default, so it's a path to international expansion. It's also a path to onboarding developers and institutions. As institutions see the power of this technology, they'll be interested.

It could be an accelerant to both global expansion and institutional and developer adoption over time.

Over time, traditional financial services and crypto will fully merge. There won't be a distinction. More and more will be onchain. Maybe at some point the entire US equities system will go onchain, powered by this technology. It might not all be on our chain; it could be a consortium or decentralized. But the end state is that public blockchain technology powers a significant portion of critical financial infrastructure, just like mainframes were replaced by data centers and now cloud. Blockchain is next in line.

Think about a company being formed in the US. There are formation documents, financing documents passed between lawyers, and a cap table managed by software like Carta. When you go public, there's a migration to whoever custodies stock and manages employee stock purchase plans. It's already a mess. The first instance will be blockchain as an adjunct, with many pieces remaining the same, but optimized independently by different forces. AI is involved, standardized documents, and legal processes. There will be reconfigurations and transitions. Issuing natively on the blockchain is just another form of this process. You still deal with lawyers and paper documents. I don't know if anyone issues tokens at significant scale without these components. I don't anticipate that changing unless other forces streamline it over time. It should be an organic, natural process for blockchain to become part of capital markets. A physical traditional share is a representation of a legal contract. The token is just the evolution of that.

All companies in our space collaborate in some ways and compete in others. Big banks try to serve all customer financial needs. Robinhood has bank accounts and partners with many banks. It's complicated; we compete for market share in some ways but also have partnership opportunities. We're both a fraction of total assets. We have hundreds of billions in assets, similar scale to Coinbase. But consider the trillions of dollars being transferred from baby boomers to millennials over the next few decades, around $124 trillion. The real opportunity is making sure Robinhood gets a good chunk of that. I try not to spend too much time thinking about competitors. It takes you away from the customer into competitive benchmarking, where you just copy others without thinking critically from first principles.

That appeals to me. I'm a fan of mullets, as you can imagine. The problem is most people are not. If you asked someone on the street about their financial app being a mullet, they wouldn't be happy. We might need a different marketing term. It might be hindering mass adoption. But beyond the hairstyle, I'm pro offering DeFi products. We have our wallet. The real question is can we make it easy to use and lower friction than alternatives? The friction in traditional financial services is high in many cases. DeFi streamlines that but introduces new friction like key management, cross-asset bridging, and gas tokens. There are good solutions to remove that. The technology and user experience haven't been figured out yet. That's something we care about. Can we streamline it and improve user experience? Sometimes that's dismissed as front-end innovation, but it can be quite complex. When we introduced the Robinhood wallet, one big thing was gasless swapping on Polygon. People wanted it across all chains, so we expanded it. At the time, nobody had spent much time on gasless swapping. We worked with counterparties to make it happen. A lot of folks in crypto don't talk to customers much; they go to conferences and speak to developers. They hadn't heard that was a problem. They wonder why their protocol stops growing when rewards stop. If you stop giving rewards, the motivated people might be less motivated. You have to make the thing work well.

Absolutely. There are benefits to things that are easy with DeFi, like swapping between different assets. You could go from wrapped Bitcoin to a stock token. Particularly in the EU, there are tax benefits. Those things might be difficult to do traditionally but become easier with DeFi.

There are two technological shifts affecting our industry: crypto and AI. I grew up wanting to be a scientist, interested in theoretical physics and mathematics. What motivated me is creating new things, new theories. I'm not as motivated by incremental improvement, though it's valuable. Personally, I like new things and figuring things out. In business, that means working on frontier technologies like crypto and AI.

I think so. The drive to innovate and work on new things that challenge the status quo and unlock possibilities that didn't exist before. That's what drives progress. If we can be a part of that, it helps us stay relevant and pushes the entire frontier forward. It's important because crypto is becoming trendy again. We'll see announcements from many big companies launching crypto experiments. But the products that succeed come from companies where leadership is emotionally invested and truly believes in the technology. I think believing in the technology has a religious element. My belief is practical: if it can solve real customer problems at lower cost with a better experience, I believe in it. If something else comes along that's 100 times better, I'd believe in that too. The difference between things that don't work and things that work well isn't belief in the technology; it's belief in yourself to iterate to something that works. You have to have real customers paying real money in a sustainable way. Many believers haven't figured that out, and some who build great businesses may have seen an amazing business opportunity first.

Thank you for joining us here in the French Riviera.