Recently, Robinhood launched a stock tokenization product, which caused quite a stir in the Web3 community. However, as someone who has been paying attention to blockchain technology for a long time, I want to talk to you about the real situation behind this product. To be honest, this is more like a well-planned marketing campaign than real technological innovation.
TL;DR
Robinhood’s stock tokenization product is more like a well-planned marketing campaign. It is mainly trying to seize the high ground of the hot topic of RWA, but from the perspective of actual innovation, there are not many highlights. In short, it uses blockchain as a tool for brand promotion, and does not fully utilize the core advantages of blockchain decentralization and composability.
Compared with Kraken xStocks' "digital twin" model, Robinhood's "synthetic wrapper" model is much worse in legal structure and functionality. It gives users a derivative contract rather than real ownership of the underlying assets. And it claims to provide EU customers with US stock exposure, but this can be easily done with traditional financial instruments, and there is no need to make it so complicated. In addition, visions that sound great, such as "24x7 trading" and "retail investors investing in private equity", are difficult to achieve in reality.
Although Robinhood has successfully packaged itself as an industry innovator with this product, its real significance lies in pointing out a possible path for the integration of TradFi and DeFi. This path may be led by Web2 companies that can simplify the complexity of Web3 and encapsulate it in a more controllable ecosystem.
Four Ways to Tokenize Stocks
Before we dive into Robinhood’s product, we need to understand the different ways to tokenize stocks. Just like there are many ways to cook, there are also several ways to move traditional stocks to the blockchain.
Synthetic Assets
What is it? This is a pure DeFi play. You don't need to hold any real stocks. Instead, you can create a token (such as sTSLA) that can track any real asset (including stocks) "out of thin air" by over-collateralizing a bunch of crypto assets (such as ETH) in a smart contract. The price anchoring of synthetic tokens is dominated by smart contracts: with the help of oracles such as Chainlink, the real-world asset prices are obtained, and the gains and losses of token holders are settled based on this, thereby ensuring that the token value is linked to the target asset price.
Who to trust? You trust the code and the economic model. You are betting that this smart contract system is robust enough, and the price of the over-collateralized collateral is stable and will not collapse.
Representative players: Ostium, Synthetix .
Synthetic Wrapper
Representative players: Robinhood .
What is it? It is essentially a derivative product gameplay. The tokens purchased by users actually represent a contract signed with Robinhood - Robinhood promises to pay token holders a return equal to the fluctuation of the corresponding stock price. In order to fulfill this redemption promise, Robinhood usually buys real stocks as a hedge, but this is not its legal obligation. In theory, as long as it can obtain regulatory approval, it can also replace stock holdings by purchasing other derivatives such as futures, without having to purchase stocks at a 1:1 ratio. Robinhood is also not obliged to disclose its specific stock holdings to token holders.
Who to trust? You trust Robinhood 100% and the regulators behind it.
Digital Twins
Representative players: xStocks on Kraken Exchange (issued by Backed Finance).
What is it? This is the most recognized model at present. Every time the issuer issues a token, it must deposit a corresponding share of stock in a regulated custodian bank (such as InCore Bank AG in Switzerland). The token in your hand is like a "digital claim certificate" for a stock. Who do you trust? You need to trust the issuer, the custodian bank, and the regulator at the same time, but the good news is that it usually has on-chain tools (such as Chainlink's reserve proof) to let you check at any time whether the stocks in the "vault" are really still there.
Native Digital Securities
What is it? This is the most revolutionary. Stocks are no longer the "shadow" of off-chain assets, but are "born" directly on the blockchain. The blockchain itself is the legal record of ownership, completely saying goodbye to paper certificates and centralized systems.
Who to trust? You trust the blockchain network itself and the legal framework that recognizes this form.
Representative Players: For example, the European Investment Bank (EIB) issued a €100 million native digital bond directly on Goldman Sachs' GS DAP™ private blockchain platform under Luxembourg law.
Distinguishing Robinhood from its competitors
Robinhood vs. Ostium (Synthetic Wraps vs. Synthetic Assets)
Commonalities:Both provide users with economic exposure to stocks, rather than direct ownership. Essentially, they are derivatives that aim to replicate the price performance of stocks.
Differences: The core difference lies inthe foundation oftrust.
Robinhoodtrust comes frominstitutions and regulation. Users trust that Robinhood, a regulated company, will fulfill its contractual obligations.
Ostiumtrust comes fromcode and economic game. Users believe that the robustness of the code and the excess collateral can ensure the stability of the value of synthetic assets.
Robinhood vs. xStocks (Synthetic Wrapper vs. Digital Twin)
Commonalities: Behind the issuers of both models, in theory, are real stocks as support.
Differences:
Different purposes for holding stocks:Robinhood holds stocks to hedge its own risks, which is a risk management tool, not a direct legal obligation to users.Backed Finance, the issuer of xStocks, has alegal obligationto hold and custody one real stock for each token issued at a 1:1 ratio.
Different ownership and risks: In Robinhood's model, stocks belong to Robinhood's assets, and users are only itsunsecured creditors. If Robinhood goes bankrupt, these stocks will be used to repay all creditors, andusers have no priority. In the xStocks model, stocks are stored insegregated escrow accountsset up for the benefit of users, which can theoretically be isolated from the issuer's bankruptcy risk, and users' asset ownership is more secure.
Different on-chain utilities: Robinhood’s tokens are confined to its“walled garden” and cannot interact with external DeFi protocols. xStocks is open, and users can withdraw it to their own wallets for DeFi lending, trading, etc., with true composability
Soul-searching Robinhood, what is the use of your “blockchain”?
Question 1: You can make this product without blockchain, right?
The answer is: Absolutely. The function provided by Robinhood, that is, allowing European users to enjoy the benefits of rising US stocks without holding US stocks, can be achieved with contracts for difference (CFDs) or other derivatives , and such products have existed in the traditional financial world for decades.
Robinhood can use a normal centralized database to record who bought how much, without using the Arbitrum blockchain at all.
Then why? The answer is simple: Marketing . Today, when RWA and tokenization concepts are popular all over the world, putting the coat of "blockchain" and "token" on products can immediately attract attention, create news, increase the company's stock price, and package itself as an innovator at the forefront of the times.
Interrogation 2: How did the promised DeFi "Lego" become a "walled garden"?
The reality is: Robinhood's stock tokens cannot be separated from its App. Although it is issued on the public blockchain Arbitrum, its smart contract contains a "gateway code" that only allows transfers between wallets approved by Robinhood. This means that you can’t withdraw it to your own wallet, trade it on DEX, or use it as collateral for lending—all Web3 composability gameplay has nothing to do with you.
Why do this? This is for controlandcompliance. Once open, Robinhood will not be able to manage regulatory requirements such as KYC/AML. Therefore, it would rather sacrifice the core open spirit of blockchain and build an absolutely safe "walled garden".
Question 3: Why did it end up being "trustless" when it was said to be "trust me, brother"?
The reality is: you have to trust Robinhood 100%. The only thing the blockchain can prove to you is that "you did buy a contract from Robinhood." But it can't prove whether Robinhood really bought stocks to hedge risks, nor can it prove whether it has the ability to honor the contract in case Robinhood goes bankrupt.
The paradox of trust: This forms a huge paradox. Blockchain was born to eliminate trust in centralized institutions, but Robinhood's model requires you to put all your trust in it. In this case, how much sense does it make to use blockchain to prove the trivial matter of "you bought"?
Summary: From these three points of view, Robinhood's stock token is indeed "blockchain in name but not in substance". It is more like a Web2.5 product disguised as Web3, a gorgeous "blockchain SHOW".
Those over-hyped "revolutionary" features
In addition to Robinhood itself, we also need to conduct a reality check on some of the current over-hyped RWA concepts.
Misconception 1: Stock on the chain = 24x7 all-weather trading?
It sounds beautiful, but the reality is very bleak. Why does Robinhood only dare to promise "24x5" instead of "24x7"? Because the two days of the weekend are"risk black holes" in the global financial market.
The problem of market makers: Any trading market needs market makers to provide liquidity. In order to hedge the risk, market makers need to buy stocks in the real stock market when you buy tokens. But on weekends, the NYSE and Nasdaq are all closed. Where can market makers hedge? If they can't hedge, they can only bear all the risks themselves. If something big happens on the weekend, the stock price will plummet on Monday, and the market maker will go bankrupt. The truth about 24x5: Even on Monday to Friday nights, because the real stock market is closed, market makers can only hedge imperfectly through tools such as stock index futures. In order to compensate for the risk, they will significantly increase the bid-ask spread. Therefore, the cost of after-hours trading will be very high, and the liquidity will be poor, which is only suitable for users with urgent needs. It is more like an expensive "emergency exit" than a smooth highway.
Misconception 2: Can retail investors also invest in OpenAI? The "mirage" of private equity
Controversy: Robinhood once launched an activity to give away OpenAI and SpaceX tokens, which immediately attracted attention - OpenAI immediately clarified that it had not authorized any related token issuance, and the market was in an uproar. The two questions that the author is concerned about are: First, why are the stocks of such popular companies given away? Second, since Robinhood claims that the tokens are backed by real stocks, where do the stocks of unlisted private companies such as OpenAI and SpaceX come from?
Where do the stocks come from? The answer lies in the "private equity secondary market" that is difficult for ordinary people to access. The transactions here are not transparent, the prices are not public, and the liquidity is extremely poor. Robinhood may have finally bought a small number of shares through a complex "special purpose vehicle" (SPV) structure. However, these shares are too small and lack liquidity even after being put on the chain, so they are simply given away as a marketing gimmick.
Opportunity or risk? Private equity investment has always had a very high threshold and is only open to "qualified investors". The core reason is that it is extremely risky and has highly asymmetric information. Institutions that are capable of participating in this type of investment can complete transactions without relying on stock tokens; the reason why ordinary people are restricted from access is that they neither need nor can they bear this risk. Tokenizing such assets may seem to be "popularizing opportunities", but in fact it is pushing risks that should not be borne by ordinary people to the public - in essence, it is more like "popularizing risks".
Marketing Victory and the Real Future
Having said so much, is Robinhood's move this time useless? No, on the contrary. From another perspective, this may be agenius first step.
A victory in the narrative war: Despite the lackluster product itself, Robinhood has outperformed its lesser-known rivals in terms of brand recognition and market share. It has successfully tied itself to the grand narrative of "the future of finance," which is crucial for a public company.
Paving the way for the future: Robinhood's ambitions don't stop there. They have announced plans to build their own Layer 2 blockchain in the future and support "self-custody" of their assets. This is the key! This means that today's "walled garden" is just a transitional stage, a test field for accumulating users, testing technology, and dealing with regulation. When the door to the garden is really opened, all the limitations we discussed today may be overturned. The endurance of Web2 giants: Finally, this incident also tells us that the large-scale adoption of Web3 may be inseparable from traditional Internet brokers such as Robinhood. Because pure DeFi is still too complicated for ordinary people. And what Robinhood is best at is to make complex things simple, imperceptible, and easy to use. They are like translators, telling the story of Web3 in a language that the public can understand.
So, our final conclusion is:
Robinhood's stock token,at the current stage, is indeed more symbolic than practical, and is a successful marketing hype.
But it is also like a wedge, knocking on the door to the integration of traditional finance and blockchain. It took the first step in the most pleasing and pragmatic way. The real revolution will not be achieved overnight, and what we are witnessing is the prelude to this great change.
For ordinary investors like us, it is perhaps most important to stay sober, understand the ins and outs, and not be carried away by gorgeous narratives or sneer at future possibilities.
Brian
Weiliang
Joy
Miyuki
Alex