Robinhood's crypto revenue tripled in Q3, signaling a strategic pivot beyond meme stocks. The platform now aggressively builds a "super app" by tokenizing assets and integrating DeFi, challenging traditional finance.
Robinhood's Q3 Crypto Surge & Enduring Vision
- Johan Kerbrat, Senior Vice President and General Manager of Robinhood Crypto, details the platform's Q3 crypto revenue tripling, attributing it to market conditions and new features.
- Robinhood added more assets, launched staking in most US states, and focused on advanced traders.
- Retail customer interest in crypto has grown significantly, viewing dips as buying opportunities.
- Founders Vlad Tenev and Baiju Bhatt launched crypto in 2018 during a "crypto winter," demonstrating foresight.
- The S&P 500 inclusion is a milestone, but the company remains focused on continuous building, recognizing "the job is not done."
“Vlad and Beiju were like, 'you know what, some customer want to have access to this type of financial instrument, they actually believe that it will be part of the next financial system of tomorrow.'” — Johan Kerbrat
Prediction Markets: Hedging, Accessibility, and Regulatory Friction
- Robinhood's prediction markets, including a joint venture with Susquehanna International Group for a new futures and derivatives exchange, represent its fastest-growing business.
- Prediction markets offer advanced hedging tools, simplifying exposure to events like AI booms without stock-specific risk.
- They provide direct engagement for users on relatable events, such as local elections.
- Connecticut's Consumer Protection Department issued cease and desist orders, accusing Robinhood and others of unlicensed online gambling.
- Robinhood maintains confidence in its legal and compliance teams, advocating for clear regulatory frameworks to avoid offshore migration.
“With a prediction market you can actually buy a contract that will actually give you the same hedge that is in a in a way simpler way.” — Johan Kerbrat
Robinhood Chain: Ethereum L2 for Financial System Overhaul
- Robinhood chose to build its Layer 2 (L2) blockchain, Robinhood Chain, on Ethereum, despite considering alternatives like Solana.
- The decision prioritizes Ethereum's security and allows Robinhood to focus on building missing financial system features.
- An L2 provides necessary customization and control over the chain's stack.
- EVM compatibility (a blockchain that can execute smart contracts written for the Ethereum Virtual Machine) facilitates easy liquidity movement, aligning with Coinbase's L2 strategy.
- Robinhood aims to abstract crypto complexity for users, handling gas fees, wallet addresses, and transaction processes seamlessly.
“We felt like we're getting the security of the Ethereum network for free in a way and we could just focus on building the feature that we we think are missing for the financial system.” — Johan Kerbrat
Tokenization: Democratizing Private Equity and Real-World Assets
- Robinhood rapidly expanded its tokenized public stocks in the EU to over 1,000, while also pursuing a broader vision for private equity and real-world asset tokenization.
- Robinhood's proprietary tokenization engine supports rapid asset growth and can extend to global markets and real estate or art.
- The company aims to bridge the gap between ultra-high-net-worth individuals and retail investors by tokenizing private equity, potentially eliminating traditional IPOs.
- Tokenized public stocks in the EU offer zero spread, zero payment for order flow (PFOF), and minimal FX fees, providing accessible US market exposure.
- Tokenization promises instant settlement and eliminates complex, delayed brokerage account transfers (ECAT), reducing locked capital and operational costs.
“We think that in the future tokenization kind of level everything else, the customer could have the same right as an important VC or someone with hundred millions of dollar.” — Johan Kerbrat
DeFi Integration & Industry Resilience Post-October 2023 Liquidations
- Robinhood's investment in Lighter, a DeFi perpetuals (derivative contracts without an expiry date, allowing traders to hold leveraged positions indefinitely) platform, signals future integration, while Kerbrat reflects on the October 2023 market liquidations.
- Lighter's use of Zero-Knowledge Proofs (ZKPs) (cryptographic methods allowing one party to prove a statement's truth to another without revealing any additional information) and its handling of the market event attracted Robinhood's investment, offering optionality for future DeFi product integration, potentially via the Robinhood Wallet.
- The October 2023 liquidations underscore the industry's need for greater resiliency, diversified price feeds, and avoiding single points of failure.
- Kerbrat advises institutions to diversify holdings and conduct due diligence, acknowledging that new platforms will experience problems.
- He emphasizes the erosion of trust from such events, similar to FTX, leading to temporary market disengagement.
“For the industry, it's more about building resiliency, making sure that we don't have single point of failure.” — Johan Kerbrat
Global Super App & User-Centric Crypto Design
- Robinhood continues its international expansion and super app development, emphasizing user experience and the need for crypto to abstract its underlying technology.
- Recent acquisitions include Bitstamp (Europe), Wonderfi (Canada), and Indonesian brokerages, targeting crypto-friendly populations in Southeast Asia.
- The super app vision integrates banking, brokerage, and crypto, with increasing intertwining of products as regulation and technology evolve.
- Kerbrat advocates for crypto product design that abstracts technical details, focusing on use cases rather than protocols.
- He draws an analogy to phone texting: users care about sending messages, not the underlying protocol.
“I always think that crypto was made by engineer for engineer and we forgot 99% of the population at the same time.” — Johan Kerbrat
Investor & Researcher Alpha
- Capital is shifting towards platforms that abstract crypto complexity, making multi-asset investing seamless for retail. Robinhood's L2 strategy and tokenization engine position it to capture this flow.
- The bottleneck for DeFi adoption is user experience and regulatory clarity, not underlying tech. Research into compliant, user-friendly DeFi interfaces and robust risk management post-October 2023 liquidations is critical for widespread adoption.
- Traditional IPOs face disruption. Research into tokenized private equity models and their impact on capital formation and liquidity for early-stage companies is paramount.
Strategic Conclusion
- Robinhood aggressively builds a global financial super app, leveraging tokenization and an Ethereum L2 to democratize access to diverse assets.
- The industry's next step involves abstracting crypto's technical complexity and establishing clear regulatory frameworks to enable mainstream adoption and integrate AI-driven financial tools.
