Robinhood CEO Vlad Tenev believes that whether a stock can be tokenized should depend on the rights and obligations created by the product, rather than whether blockchain technology is used.

Written by: Vlad Tenev, Robinhood CEO

Translated by: Chopper, Foresight News

All of us, no matter where we are, should be able to access high-quality financial assets. At Robinhood, we have been pushing to realize this vision globally, starting with U.S. stocks.

Just over two months ago, we launched Robinhood stock tokens on the Robinhood Chain, allowing investors outside the U.S. to gain exposure to U.S. stocks and ETFs on-chain. At that time, we did not anticipate that this product would receive such a strong response.

As adoption scales, the questions being raised have undergone an interesting shift: from the fundamental level of "Can we develop such products? Is there anyone willing to use them?" to more technical questions: What should the appropriate product architecture be? Do companies have the right to approve or reject the tokenization of their own stocks?

This issue is particularly critical when discussing how to introduce tokenized stocks to the domestic U.S. market, and I have written articles on this topic. Although the benefits of tokenization have become increasingly clear to users and regulators alike, we still need to do more work to show asset issuers their value. This should not be difficult to achieve, as tokenization can open up a vast global market for issuers' shares, with relatively limited potential risks. However, this requires issuers to make some adjustments and tokenization platforms to provide adequate market education.

The topic of issuers' consent is highly valuable for discussion; it touches upon the boundary between issuers' rights and investors' rights. The answers depend on three principles:

• Investor property rights: Shares of publicly traded companies are transferable personal property. Holders of freely tradable shares have the right to decide how to hold and dispose of their shares.
• Issuers' authority: Companies control the rights associated with the securities they issue but do not control all financial products developed by others based on those securities. Unsponsored American depositary receipts (ADRs), options, and third-party structured products already reflect this boundary of rights and responsibilities.
• Technological neutrality: Whether an issuer's consent is required should depend on the rights and obligations created by the product, rather than whether the product uses blockchain technology.

This set of criteria is very clear in two extreme scenarios. If a particular product tries to change the rights associated with underlying shares, replace the company's official shareholder register, or impose new obligations on the company and its transfer agents, issuer participation must be sought.

If the product merely creates an independent financial instrument that holds or is linked to freely transferrable shares, and does not alter the rights, obligations, or official shareholder records of the issuer, then no issuer consent is needed.

There are various paths to the tokenization of stocks. Issuers can directly put their shares on-chain; intermediaries can tokenize the ownership of the underlying shares; third parties can also issue independent instruments that are backed by shares or linked to shares. The answer to the question of issuers' consent depends on which specific architecture is actually adopted.

Robinhood's stock tokens adopt the third approach. Our goal in designing this product is global expansion: covering multiple jurisdictions, thousands of stocks and ETFs, extending from publicly traded stocks to private equity and other asset classes in the future. Stock tokens are independent financial instruments backed by a 1:1 reserve of underlying shares, providing users with exposure to economic returns while not changing the issuer's equity structure or altering the rights associated with the shares themselves.

We chose this architecture to allow stock tokens to be promoted globally, without requiring each underlying company to reconstruct its system or individually connect to this product. As in the past, we can also adjust this model as regulatory guidance evolves in the future.

Investors should be clear about the assets they hold, the corresponding rights, and whether the issuer is involved. We will present this information as clearly as possible through prospectuses, disclosure documents, and product interfaces.

There is also a more macro historical lesson to consider.

The paper document crisis at the end of the 1960s overwhelmed the market system reliant on the circulation of physical stock certificates. The solution at that time was stock freezes and electronic book settlements. This mechanism significantly improved market efficiency and also gave birth to the current street name holding system, where ownership records and actual beneficial ownership are often separated among multiple intermediary institutions. (Note: The street name holding system is the current mainstream securities custody mechanism in the U.S., where stocks are uniformly registered under the name of brokers and clearing institutions, and ordinary investors only enjoy the economic benefit rights.)

Given the technological conditions of that time, this was the optimal solution. But we cannot assume that this is the endpoint of market mechanism evolution.

The lesson from this history is that market infrastructure will continue to evolve with ongoing technological iterations. The system built to accommodate the limitations of paper certificates should not directly dictate the operational rules for asset ownership in the on-chain world. Blockchain can provide financial assets with greater transferability, transparency, and programmability, allowing investors to have more choices on how to hold and use their assets.

Companies should control the rights associated with their shares, but cannot manage the lawful uses of the shares once they have already belonged to investors. The tokenization of assets does not mean that issuers gain veto power they did not possess off-chain. Of course, issuers also cannot simply block new groups of investors from entering the market just because they do not yet understand this new technology.