Robinhood Tokenization May Undercut NYSE Liquidity, Galaxy Warns

Robinhood’s plan to tokenize shares on its new Ethereum-compatible blockchain might shift buying and selling quantity away from conventional exchanges just like the NYSE, undermining their core revenues from buying and selling charges and market information, in keeping with Galaxy Digital.

On the EthCC convention this week, Robinhood CEO Vlad Tenev detailed plans for “Robinhood Chain,” an Ethereum-compatible layer-2 on Arbitrum Orbit. The blockchain will let customers commerce tokenized derivatives of shares straight onchain, transferring asset buying and selling exterior conventional change hours.

Tenev defined {that a} new token engine working on the Robinhood Chain will present customers with tokenized derivatives of their property, enabling them to self-custody these tokens or work together with a decentralized utility.

By minting token “wrappers” linked to actual shares custodied by a US broker-dealer, Robinhood will provide customers near-instant settlement and 24/5 buying and selling at first, with 24/7 buying and selling deliberate. The initiative leverages Robinhood’s current acquisition of crypto change Bitstamp.

Associated: SEC ends ‘regulation by enforcement,’ calls tokenization ‘innovation’

Robinhood tokenization brings property onchain

In a Friday report, Galaxy Digital mentioned that Robinhood’s tokenization transfer removes property from conventional market channels and brings them onchain, straight difficult the concentrated liquidity and exercise that give main TradFi exchanges just like the NYSE their edge.

“This straight challenges the deep focus of liquidity and exercise that offers main TradFi exchanges (e.g., NYSE) their aggressive benefit,” Galaxy Digital wrote.

The platform’s structure mirrors rollup fashions like Coinbase’s Base, giving Robinhood full management of its sequencer and the power to seize all transaction charges. Galaxy estimates Base generates over $150,000 in each day sequencer charges for Coinbase.

By working the sequencer for Robinhood Chain whereas controlling tokenized property, Robinhood goals to monetize each layer of the buying and selling stack — from “offchain buying and selling to onchain utility,” the report mentioned.

Notably, the enchantment of tokenized property extends past 24/7 buying and selling. Programmability might enable makes use of like utilizing tokenized shares as collateral in DeFi protocols or automating dividends, options that conventional equities can’t match.

As Galaxy famous, if incumbent exchanges can’t match the utility of tokenized property, they threat changing into “custodians of a much less purposeful model of the identical property,” pushing extra merchants to blockchain-based platforms.

Associated: ‘The whole lot is lining up’ — Tokenization is having its breakout second

Volatility dangers stay

Nevertheless, the 24-hour buying and selling mannequin might introduce volatility dangers for retail buyers, who could get up to sharp worth strikes exterior common hours.

Moreover, regulatory uncertainty stays a problem. Whereas Robinhood’s tokens are solely obtainable to EU customers, the US Securities and Alternate Fee (SEC) has not commented publicly on the mannequin.