New York. The office of the American fintech giant Robinhood in New York is barely visible from the outside. If you're looking for a large headquarters with a green logo, you won't find it here. It is the self-image of a company that turned the brokerage industry on its head years ago - and yet does not want to count itself as part of the establishment.
When the company launched commission-free trading in the USA for the first time in 2015, it was a declaration of war on traditional brokers who had done good business with transaction fees for decades. Since then, companies around the world have adopted the concept of almost commission-free trading - including in Germany.
“Many of the competitors in Germany have copied Robinhood in many ways,” says Johann Kerbrat. The Frenchman heads the crypto business and the internationalization division of the group. He alludes in particular to the German neo-broker Trade Republic, without mentioning its name. Kerbrat leaves no doubt that there is only one original.
Robinhood currently does not have a product that is specifically tailored to German customers. However, it is something “that we will explore in the future,” Kerbrat tells Handelsblatt.
The focus, at least at the moment, is different: Robinhood is aiming for the next big change in the financial market, and it should go far beyond commission-free trading: the tokenization of the stock world.
What sounds like a technical gimmick from the crypto world has the potential to transform the entire infrastructure of the financial market - from clearing to settlement. Tokenization or “tokenization” is the buzzword of the moment on Wall Street.
In contrast to the “large language” models of AI providers, a token represents a value or a right to an asset digitally on the blockchain - this can be bonds, real estate, works of art or even stocks. A tokenized share can represent the security itself or, as a derivative, reflect its price development one-to-one. Instead of holding an Apple share in their portfolio, investors then held an Apple token in their wallet.
There are potentially several benefits for investors. Tokens can be traded around the clock, and the elimination of middlemen could also make trading cheaper in the future. Processing is faster compared to traditional trading and also takes place almost in real time. In addition, tokens can be divided into denominations, which also makes fractions of an asset tradable.
“We will make it possible to own any type of asset,” says Kerbrat.
Robinhood is not alone with this ambitious plan. Other providers such as Coinbase or Kraken also want to transfer values from the real world to the blockchain. But with around 29 million customers, Robinhood has a special role in the market by opening up token trading to the mass market.
In the future, the company is also making a strategic change: Robinhood is positioning itself increasingly as an operator of an alternative financial market infrastructure with its own blockchain, the Robinhoodchain. The company could use this to handle important parts of its trading itself in the future. This also puts the business model of stock exchanges, custodian banks and clearing and settlement centers under pressure. As a counterparty, clearinghouses ensure guaranteed payment and delivery between buyer and dealer.
Robinhood boss Vlad Tenev told the TV channel Bloomberg last year that the tokenization freight train would eat up the financial world.
Peter Damisch of banking consultancy Capco says Robinhood is trying to take on additional elements of the value chain traditionally covered by exchanges, clearinghouses and depository institutions. However, the expert does not assume that the group is simply copying the business models of classic infrastructure providers, but rather is building an alternative infrastructure that integrates certain functions of established providers.
Damisch believes that tokenization will fundamentally change the capital market infrastructure. Nevertheless, he does not assume that it will necessarily displace its established players. “Rather, value creation, competitive boundaries and profit models will shift.”
Financial structures that have grown over decades cannot be modernized overnight. And yet there is currently rapid change taking place among established providers.
A decision by the Depository Trust & Clearing Corporation, or DTCC, from October is seen as one of Wall Street's most important forays into the era of tokenization. The company is the largest settlement, custody and clearing service provider in the United States. Its position on the market is unique: without the company, trading in securities in the USA would not be possible.
In October, the DTCC launched a service that can potentially convert around $30 trillion in securities into digital tokens. Banking heavyweights such as JP Morgan and Morgan Stanley have signed corresponding agreements for use. The institutes' hope: according to Nasdaq, efficiency gains in trading amounting to $340 billion. The DTCC's move is a prerequisite for tokenized trading in the USA.
“That was the decisive moment, the breakthrough,” says Frank Seibold, who heads Chainlink’s banking and capital markets business. The US company is considered one of the most important players in the market to build the technological bridge between the established financial market infrastructure and the new world of tokenization.
From Seibold's point of view, the change will not happen overnight. “In the early 1990s there were still people shouting prices over the phone: ‘What’s the euro-dollar exchange rate?’” Today there are hardly any manual traders left in these markets. But it took a few years until “All Boys” became “All Electro,” says the manager.
For Seibold, it is clear that companies like Robinhood are among the pioneers of the trend. The private customer market drove the market leaders. “And the market needs to build the infrastructure to support that.”
While companies are following suit at the institutional level, other providers such as Robinhood are targeting private investors. It was only in October that the crypto company OKX announced a trading platform for tokenized securities in a joint venture with the stock exchange operator ICE.
“We think there are more things we can focus on as these companies get busy catching up,” Kerbrat says. “We believe we have enough of a lead over the competition that we don’t have to worry too much about it.”
There are still a number of hurdles standing in the way of the widespread use of the technology for private investors, such as custody and liquidity. At the center, however, is the question of clear regulations.
In Europe, Robinhood has been offering its customers trading in tokenized US securities and ETFs since last year and, according to Kerbrat, benefits from clearer guidelines in regulation - something that he is “envious of in the EU”.
In the USA, however, a uniform framework, the “Clarity Act”, only failed in September, also because of the ongoing dispute between the SEC and the CFTC over regulatory authority in the area.
Legally, there are big differences between trading in Europe and the USA. On the old continent, investors can only trade tokenized derivatives. They therefore do not have the same rights as shareholders, who have the right to vote at general meetings.
In the USA, despite the failure of the “Clarity Act”, trading in tokens will be permitted via an exemption for five years, provided that companies adhere to certain conditions.
One of them is that token holders must have the same rights as shareholders. The biggest problem for providers like OKX-ICE is no longer tokenization, but trading with it. With the SEC rule, issuers have the opportunity to object to the trading of their tokenized shares on third-party platforms within 30 days. And a number of companies have already made use of this veto right: Alphabet, Goldman Sachs and Microsoft. However, crypto companies in particular have agreed so far.
The recent public conflict between Robinhood founder Tenev and Adam Aron, the head of AMC Entertainment, shows how controversial the approval of trading in digital assets is.
Aron called for AMC token trading to be stopped on the platform because the company had not agreed to tokenization. He described the process as “despicable”. Robinhood, on the other hand, referred to European regulation. Accordingly, the company does not have to agree because these are only tokenized derivatives. Customers can only trade with it in Europe.
The debate also concerns the fundamental question of whether the tokens create a parallel market in which the token prices deviate significantly from the prices of the underlying assets. The risk of this increases especially when only a few market participants trade in it and the prices fluctuate particularly strongly due to the low trading volumes.
Robinhood, on the other hand, has the big picture in mind. With the new possibilities of technology, the focus is primarily on the customer. Tokenization thus expands the group’s reach. Kerbrat sees potential primarily in regions and countries where Robinhood is not yet represented with traditional products: especially in Asia and Africa.
