Galaxy Digital stated that Robinhood's plan to tokenize stocks on its new Ethereum-compatible blockchain could shift trading volume away from traditional exchanges like the NYSE, undermining their core revenue from trading fees and market data.
At this week's EthCC conference, Robinhood CEO Vlad Tenev detailed the plans for "Robinhood Chain," an Ethereum-compatible Layer 2 network based on Arbitrum Orbit. This blockchain will allow users to trade tokenized derivatives of stocks directly on the blockchain, moving asset trading outside of traditional trading hours.
Tenev explained that the new token engine running on Robinhood Chain will provide users with tokenized derivatives of their assets, enabling them to self-custody these tokens or interact with decentralized applications.
By minting "wrapped" tokens associated with real stocks held by U.S. brokers, Robinhood will offer users near-instant settlement, initially achieving 24/5 trading and planning for 24/7 trading. This initiative leverages Robinhood's recent acquisition of cryptocurrency exchange Bitstamp.
In a report on Friday, Galaxy Digital stated that Robinhood's tokenization initiative will remove assets from traditional market channels and bring them on-chain, directly challenging the centralized liquidity and activity that provide competitive advantages to major traditional financial exchanges like the NYSE.
"This directly challenges the deep centralized liquidity and activity that provide competitive advantages to major traditional financial exchanges (such as the NYSE)," Galaxy Digital wrote.
The platform's architecture is similar to aggregation models like Coinbase's Base, allowing Robinhood to have complete control over its order book and capture all trading fees. Galaxy estimates that Base generates over $150,000 in order book fees for Coinbase daily.
The report noted that by operating the order book for Robinhood Chain while controlling tokenized assets, Robinhood aims to monetize every layer of the trading stack—from "off-chain trading to on-chain utility."
Notably, the appeal of tokenized assets is not limited to 24/7 trading. Programmability may allow tokenized stocks to be used as collateral in DeFi protocols or enable automated dividend distribution, features that traditional stocks cannot match.
As Galaxy pointed out, if existing exchanges cannot match the utility of tokenized assets, they risk becoming "custodians of weaker versions of the same asset," driving more traders to blockchain-based platforms.
However, the 24-hour trading model may pose volatility risks for retail investors, who might wake up to significant price fluctuations outside of regular trading hours.
Additionally, regulatory uncertainty remains a challenge. While Robinhood's tokens are only available to EU users, the U.S. Securities and Exchange Commission (SEC) has not publicly commented on the model.
The Securities Industry and Financial Markets Association (SIFMA) has urged the SEC to reject trading tokenized stocks outside of the NMS regulatory framework.
Related: Robinhood's Tokenization of OpenAI Equity Sparks Controversy: Altman Denies Authorization, Musk Calls It "Fake Equity"
Original article: “Galaxy Digital: Robinhood's 24/7 Tokenization Initiative Threatens NYSE Revenue”
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