Robinhood Plans 24/5 Trading With Tokenized Stocks On New Blockchain

Robinhood's recent announcement of its plans to tokenize stocks on its new Ethereum-compatible blockchain, dubbed "Robinhood Chain," has sparked significant attention in the financial community. This initiative, detailed by Robinhood CEO Vlad Tenev at the EthCC conference, aims to shift trading volume away from traditional exchanges. By leveraging an Ethereum-compatible layer-2 on Arbitrum Orbit, Robinhood Chain will enable users to trade tokenized derivatives of stocks directly on the blockchain, effectively moving asset trading outside traditional exchange hours.

The implications of this move are profound. According to Galaxy Digital, Robinhood's tokenization push could undermine the core revenues of traditional exchanges, which rely heavily on trading fees and market data. The new token engine operating 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. This initiative, which leverages Robinhood’s recent acquisition of crypto exchange Bitstamp, promises near-instant settlement and 24/5 trading initially, with plans to extend to 24/7 trading in the future.

Galaxy Digital's report highlights that Robinhood's tokenization move removes assets from traditional market channels and brings them onchain, directly challenging the concentrated liquidity and activity that give major traditional financial exchanges their competitive edge. The platform’s architecture, which mirrors 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 are not possible with traditional equities. If incumbent exchanges cannot match the utility of tokenized assets, 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 could introduce volatility risks for retail investors, who may wake up to sharp price moves outside regular hours. Additionally, regulatory uncertainty remains a significant challenge. While Robinhood’s tokens are currently only available to EU users, the US Securities and Exchange Commission (SEC) has not commented publicly on the model. The Securities Industry and Financial Markets Association (SIFMA) has already urged the SEC to reject trading of tokenized equities outside the Regulation NMS framework, adding another layer of complexity to the regulatory landscape.

In summary, Robinhood's push to tokenize stocks on its new blockchain represents a significant shift in the financial landscape. While it offers numerous advantages, including 24/7 trading and enhanced programmability, it also poses challenges related to volatility and regulatory compliance. The success of this initiative will depend on how well Robinhood can navigate these challenges and capitalize on the opportunities presented by tokenized assets.