Robinhood CEO Says Tokenised Stocks Could Prevent Another GameStop-Style Trading Freeze

Trading giant Robinhood believes tokenised stocks are a way to avoid trading disasters (like Robinhood experienced in 2021 with GameStop). 

The argument is that putting equities on the blockchain could remove much of the plumbing risk that forced brokers to restrict buying at the peak of stocks.

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Tokenisation and The Problem With Infrastructure

Robinhood’s chief executive, Vlad Tenev, used the five-year anniversary of the January 2021 freeze to shift the blame from manipulation to something more of an infrastructure issue. 

During that episode, Robinhood and other retail platforms faced sudden, steep collateral calls because trades in US equities settled on a two-day delay. The exchange had to halt the trading of meme stocks (like GameStop) due to massive collateral demands from clearinghouses like the NSCC and DTCC. 

To continue operations, Robinhood had to raise north of US$3 billion (AU$4.5 billion) in emergency capital for these clearinghouses to meet a bigger margin to cover potential trade failures.

In other words, they were looking at insolvency due to a lack of immediate liquidity, while users, notably and understandably furious, were blocked from adding to positions in GameStop and similar names.

So, the problem now seems to be infrastructure, as Tenev says they advocated for real-time settlement of stocks:

What happens when you combine slow, outdated financial infrastructure with unprecedented trading volume and volatility in a small number of stocks? Massive deposit requirements, trading restrictions, and millions of unhappy customers. (…) We intensely advocated for real-time settlement of US stock trades, and this led to shortening 2 day settlement (T+2) down to T+1

Vlad Tenev. CEO and Founder of Robinhood.

He’s talking about how the previous Securities and Exchange Commission (SEC) administration under Gensler shortened the standard cycle from T+2 to T+1, meaning trades are now meant to settle one business day after execution. However, Tenev argues that this remains out of sync with markets that react 24/7, and this is where tokenisation comes in:

Among other benefits of tokenisation, like lower costs, native fractionalization, and 24/7 trading, moving equities on-chain in tokenized form allows them to benefit from the real-time settlement properties of blockchain technology. We’ve already seen how this can work. In Europe, Robinhood has made available more than 2,000 tokens representing US-listed stocks. These tokens give European traders exposure to U.S. equities, including dividends.

Vlad Tenev. CEO and Founder of Robinhood.

The company plans to extend this tokenised stack with 24/7 trading and DeFi integrations such as self-custody, lending, and staking. But moving the core US equity market in the same direction would require regulatory action. 

Tenev finalised by backing the proposed CLARITY Act, which would push the SEC to design a formal rulebook for tokenised shares.

Current leadership at the SEC is embracing innovation and facilitating experimentation with tokenization. Additionally, Congress is actively considering the CLARITY Act, an important piece of crypto legislation, which requires the SEC to continue down its path of embracing this technology and to write modern rules for tokenized equities.

Vlad Tenev. CEO and Founder of Robinhood

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