Robinhood Chain May Shift 24% of Trading Volume from Traditional Exchanges

Robinhood's ambitious plan to tokenize stocks on its new Ethereum-compatible blockchain, dubbed "Robinhood Chain," has sparked concerns about its potential impact on traditional exchanges. According to Galaxy Digital, this move could significantly shift trading volume away from these exchanges, thereby undermining their core revenues derived from trading fees and market data.

At a recent conference, Robinhood CEO Vlad Tenev unveiled the details of the Robinhood Chain, an Ethereum-compatible layer-2 on Arbitrum Orbit. This blockchain will enable users to trade tokenized derivatives of stocks directly on the chain, effectively moving asset trading outside the traditional exchange hours. Tenev explained that a new token engine on the Robinhood Chain will provide users with tokenized derivatives of their assets, allowing them to self-custody these tokens or interact with decentralized applications.

The initiative involves minting token "wrappers" linked to real stocks custodied by a US broker-dealer, offering users near-instant settlement and 24/5 trading initially, with plans to extend this to 24/7 trading. This move leverages Robinhood’s recent acquisition of the crypto exchange Bitstamp.

Galaxy Digital's report highlights that Robinhood’s tokenization efforts could remove assets from traditional market channels and bring them onchain, directly challenging the concentrated liquidity and activity that give major traditional financial exchanges their competitive edge. The platform’s architecture, similar to rollup models, gives Robinhood complete control of its sequencer and the ability to capture all transaction fees. This control allows Robinhood to monetize every layer of the trading stack, from offchain trading to onchain utility.

The appeal of tokenized assets extends beyond 24/7 trading. Programmability could enable features such as using tokenized stocks as collateral in decentralized finance (DeFi) protocols or automating dividends, which traditional equities cannot match. If incumbent exchanges cannot offer the same utility, they risk becoming custodians of a less functional version of the same assets, potentially pushing more traders to blockchain-based platforms.

However, the 24-hour trading model introduces volatility risks for retail investors, who may face sharp price moves outside regular hours. Additionally, regulatory uncertainty remains a significant challenge. While Robinhood’s tokens are currently available only to users in the European Union, the US Securities and Exchange Commission (SEC) has not publicly commented on this model. The Securities Industry and Financial Markets Association (SIFMA) has urged the SEC to reject trading of tokenized equities outside the Regulation NMS framework, adding to the regulatory hurdles Robinhood must navigate.