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Today, I'm talking with Vlad Tenev, the co-founder and CEO of Robinhood, which at this point is one of the most well-known consumer finance apps in the world, right up there with PayPal and Venmo. It started as a way to let more people trade stocks, but the company's ambitions have grown over time, and they're getting even bigger.
Just a day before Vlad and I talked, Robinhood announced it would soon be offering bank accounts and wealth management services, which would allow the company to really be involved with your money at every possible level. So I was interested to sit down with Vlad and hash out where Robinhood is going. And why he's so adamant that big ideas like prediction markets based around everything from sports games to presidential election.
are going to play such a pivotal role in the future of finance. And I really wanted to talk about the responsibilities that come with that role. See, Robinhood's on a lot of people's phones, especially young men. And it's a quick jump from doing a little bit of casual retail investing to potentially dumping all of your money into a bunch of unpredictable, unstable markets.
There's a whole generation of people out there who might have bought a share of GameStop as a joke during the pandemic, and a few years later are finding themselves gambling every day in the crypto and prediction market.
Vlad and I really dug into some of the complexity around these ideas. For example, you'll hear Vlad say he thinks of prediction markets as, quote, the news faster, and that he thinks there is a meaningful difference between a prediction market guessing if the Lakers will win their next game and simply placing a bet. on DraftKings or FanDuel for the same outcome.
You'll hear him say that prediction markets communicate unique information that reflects reality, rather than simply being a dressed-up version of gambling that mostly reflects how people feel. You will also hear my deep, deep skepticism of these ideas. I really pressed Vlad for answers on how he thinks about the risks involved, especially for regular retail investors, and whether the regulatory environment can keep up with that escalating.
of risk. It's already causing problems. New Jersey and Nevada both ordered Robinhood to halt its prediction markets, and the company's partner Kalshi has launched lawsuits to push back. You'll hear Vlad say that he has no firm idea on where any of that might go, but that he fundamentally believes that people should get to do whatever they want with their money, and that he wants to position Robin Hood as a central destination for all of those transactions.
That made me curious. What does Vlad see as Robin Hood's ultimate destination? So I asked him outright. Does he think Robin Hood is just selling an updated version of the American dream? where the right wager on a prediction or a stock or meme coin can shortcut your way to financial freedom.
I won't spoil it, but his answer is pretty illuminating. Like I said, you're going to hear Vlad and I disagree quite a bit throughout this episode, but I want to give him credit. He was game to really sit in some of the ambiguity and controversy here and talk about it in ways that many in the crypto and finance world simply... I'd rather enjoy this one. I think he will too. Okay, Robin Hood CEO Vlad Tenev. Here we go.
Vlad Tenev, you are the co-founder and CEO of Robinhood. Welcome to Decoder. Thanks for having me, New Light. I have so much to talk to you about. I think I have 900 pages of questions for you. There's a lot going on in financial services. You all just launched banking services. There's a lot going on in crypto. I know you're very interested in prediction markets. I have a million questions about that.
If you're a game, I'd like to go through the decoder questions about structure and decision-making very fast at the top and then get to the rest. Are you okay with that? Yeah, I'll try to be brief. Because usually I do all this windup, but I think people know what Robinhood is, and I think your ideas about where it's going are really interesting. So let's just start with Robinhood. You founded it. You were the sole CEO. Then you were the co-CEO for a minute with your co-founder.
He went to become the chief creative officer, then he left the company. Just talk about that set of... That's a pattern we see in startups quite often. How did that all go down? I think we technically started as co-CEOs as well, although in the early stages, things are always a little bit murky. And then what happened was, in the early days of the company, roles don't really matter because you're 10 people and you're all in one room and you're kind of like,
doing what's necessary to make the company win. We both didn't really have any
concrete finance business or even technical skills when we started the company. We met in college. We were actually both physics majors at the time, and we kind of like... were brought together by our love for physics we we wanted to seek to understand answers to the big questions like what happened before the big bang or you know the my favorite one like how can we unify general relativity and quantum mechanics so that that's like how we
became good friends. We were banging our heads against the wall trying to do problem sets in physics and math in college. And then we kind of learned to build products and build businesses together. We were co-founders of a few companies before Robinhood. When we started Robinhood, we kind of moved to San Francisco together. he became a designer so he literally like bought a wakem tablet and started designing and i became an engineer and i still remember
On the Caltrain ride from San Francisco down to Palo Alto, I would watch Paul Haygarty's iOS development classes at like 2x speed. And that's how I learned to be an iOS engineer. and so that was kind of the division of labor i was writing code he was doing the designs we built a team around that then we kind of like became managers and then we became executives. And I think at each point we kind of like reassess.
what we wanted to be spending our time on, how we could add the most value to the company. When it became clear that we're going to have executives, we're going to be a public company. He made the decision that, you know, he didn't want to be the CEO of a public company that didn't feel like how he wanted to spend his time and his energy. So he took the chief creative officer role. And then I think a couple of years ago came to the decision that, you know.
He wanted to go back to the original passion when we met, which was doing things with a more overt math and physics component. And so he ended up starting another interesting company, Aetherflux. which aims to bring solar energy in a more efficient form down to Earth. and targeting sort of like remote outposts and military locations where energy is
sorely needed. And so he went off to start that and is still a board member. So as the company changes, I think we were pretty good at kind of reevaluating our roles and what we wanted to spend time. And it was just sort of like a organic evolution over time. So much of our audience is people who build things and people who want to be founders, people who are at different stages of being a founder.
And I always say that no one ever talks about act two, those changes, right? Going from managing people to being executives and managing managers. And it seems like you have chosen, you're going to be the eye of the storm of the public company. changing how finance is done. Are you comfortable with that now? It's been several years. You've been the CEO since 2020. Have you settled into that role?
I don't know. I mean, you can never be too comfortable, right? What I'll tell you is the things that I enjoy do tend to align pretty well with being a public company and kind of the activities of a public company CEO. So communicating the vision, figuring out how we can distill it in a simple form. I love the idea that
Institutional power and the things that normally would have been reserved for institutions are now through technology available to individuals. And that's very much part of the genesis of Robinhood. It was all about individual participation in equity markets. and as a public company. We allow individuals to participate in being shareholders of Robinhood in a much bigger way. And so we've been doing all sorts of things to change what being a public company looks like, right?
Like we were among the first to actually engage retail in a substantive way in our IPO. I think to my knowledge, we were one of the biggest, if not the biggest, in terms of retail IPO allocation at the time. We let Robinhood customers... through the Robinhood app, participate in our own IPO. Then we bought a company called Say Technologies that does shareholder communications.
So if you've listened to like Tesla, Palantir, Robinhood earnings calls, they take questions from retail via our Say Technologies platform. And then, you know, last quarter, we did a live video earnings call that was actually very cool. I think the inspiration was a post-game interview at an NBA game. We were like, that's fun. Like, what are the other settings where? You have people that just went through something hard talking about it and, you know.
And I'm an NBA fan, so I actually look forward to the post-game interviews. I want to see what they're wearing. If it's a big loss, then I want to hear LeBron talking about what they could have done better. It's also fun if they win.
News, entertainment, financial services, sports to some degree, these are all merging over time. And they're part of our collective consciousness. And I think retail is a big part of that. A big enduring trend is... power and capabilities that were formerly reserved for institutions going to the individual level. I think we can change a lot of things about
what it's like being a public company, participating in earnings calls. Traditionally, they were kind of viewed as a chore and nobody really liked doing it. And it was kind of considered this just BS that you have to deal with that was a cost. But I think it's an opportunity. I think if like executed appropriately, it's another opportunity to get the message out. So I enjoy doing that and I'm still learning.
You know, I don't have it figured out yet, but I think we can discover new things and being a public company definitely provides us opportunities to... do different things that we wouldn't normally be able to do. I want to come back to that theme of what it's like to be the founder and the CEO of a startup versus the public company CEO of now a bank. Those are different characters. And I'm going to come back to that theme a few times, I think, throughout this conversation.
How are you structured now? How is Robinhood structured now? You've had some changes. You've had some layoffs over the past few years. How have you organized the company now? Yeah, we have a parent company, Robinhood Markets Inc., and that's publicly traded. We have a number of subsidiaries. That yeah, typically we organize the subsidiaries by business line, but now we also have international businesses. So we've got some international subsidiaries.
And I've got general managers who are basically like CEOs in their own right that report to me that manage the business. so steve quirk who's our chief brokerage officer also is the general manager of our brokerage business And, you know, he's got a couple of broker dealers that he oversees, like Robinhood Financial and Robinhood Securities, which is our clearing firm. So we're essentially a vertically integrated brokerage business under Steve Quirk.
And then we've got Johan Karabrad, who's our GM of crypto. He runs our crypto business. Deepak Rao, who presented at the gold event, who runs banking now and credit card. He's the GM of money. And he's running his own P&L and business as well. And then we have a couple of GMs in different areas that are building businesses. So JB McKenzie, he runs Futures. also prediction markets, and he's got international brokerage responsibilities.
And a few others here and there, a few earlier stage efforts, but those are kind of the big businesses. GMs, we try to give full accountability, full responsibility. So they have their own product resources. By and large, they have their own engineering resources as well. Although we have a central platform engineering that kind of. builds the underlying technology for everything.
design and marketing and brand, or design and brand, I should say more so, centralized under me because I think it's important for all of our business lines to have a cohesive design language and also cohesive story when they communicate to the public. So those remain centralized. But yeah, most everything sits under the GM. That's unusual for a startup of Robinhood's age. Most startups at this time are still pretty functional. Everything...
rolls up to the CEO. Have you structured into divisions in this way because of regulatory concerns, because it's more efficient? The app is still the app, right? You express all of Robinhood to the user as one single app. Why have you broken out into divisions inside of that app? Yeah, by and large, I mean, we have multiple apps. We've got Crypto Wallet, which is a separate app. Banking is a separate app. And then the main Robinhood app is...
All of our trading and investment services are in that one. So we do have three apps, but you're right in that the GM divisions are not per app. GMs collaborate. share app services. And I have a product leader that manages the core app. So they're in charge of like navigation and design of the overall experience. So we try to solve it that way. But you know, there's puts and takes with every org structure when people are separated in divisions.
as you say, it becomes a little bit harder to find ownership over the core surface areas because that's not natural. and also the tension points where they interact or where maybe they have different goals bubble up to me or to core product. So we've tried to engineer around that by making those tension points at least knowable and specific. We know it's going to be design, core app, and marketing.
The flip side is if everything's functional and you're rolling out multiple businesses, then nobody owns the P&L of those businesses, right? If I ask someone, you know. For example, why is uh options uh market share the way it is or options revenue they're like well i don't know i've got the product the product's great now the engineering is working according to spec but um
the P&L accountability for all business lines would be me. And then you also see people, there's not one person in that structure besides the person at the top. That's like living and breathing and losing sleep over the business results of what they're working on, which is, I think, a flaw. Yeah, at least for us, which is a multi-product line, multiple entity business, I think it's worked really, really well. We made that transition in 2022. And I think since that point. the results have become
I think all the GMs feel huge accountability and responsibility over their entire businesses. They have more ownership. They love it. And I think we've been executing really, really fast. And it's worked very, very well for us, but not without risks that have to be managed. And I think there is a nice thing about it being aligned with the regulatory structure.
So we're regulated. We have lots of regulated businesses. Each of them have different licenses. A lot of the times, the regulations stipulate that the business needs to have a president with actual authority, a chief compliance officer. And so kind of aligning the regulatory structure to how we operate very, very closely has just reduces complexity. And I think in functional, you have to fight against that and compensate for that to some degree. And other people have strong feelings about.
actually hiding the regulatory structure from users and absorbing that complexity as an organization. I think if you can figure out how to kind of align with it and actually use it effectively. It saves time and streamlines things so that we've embraced it rather than fought against it. The structure question is the big decoder question. The other one I always ask everybody is, how do you make decisions? What's your framework?
I would say I operate at opposite ends of the spectrum. So on the one hand, I'm a math and physics person. So I love data. I love numbers. I'm very quantitative. I like digging into the details. kind of breaking things into constituent bits reductionist in that way one of the values that we have is first principles thinking so
I'm generally allergic to thinking by analogy, like, oh, this is the way it worked at E-Trade, for example. You know, when I hear something like that, I immediately get... skeptical so i don't i don't love reasoning by analogy i don't like Doing things just because others have done them that way
yeah i think we we have this saying uh yeah we we only follow the crowd when they're right so i don't want to be contrarian for the sake of being contrarian either i think i think that's kind of silly but the ultimate thing is
is it right? And we'll follow the crowd if they're right. If they're wrong, we'll gladly go against them. So that's one side. I think the other side is i'm also incredibly comfortable just doing things based on gut feel so i think you need that in order to actually push design forward because design by its very nature is Not super quantitative. A good design is opinionated, which means you'll piss people off who disagree with it. I have no problem with that. So I'd like to say, you know.
The endpoints are important. It's good to make some decisions intuitively based on gut feel, others quantitatively, and generally just sort of the middle takes care of itself. We need to take a quick break. We'll be right back. Support for the show comes from Mercury. It's your hard work becoming revenue. It's more than a wire. It's payroll for your team. It's more than a deposit. It's landing your fundraise. The truth is banking can do more.
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Before the break, Vlad and I were going through our usual decoder questions about structure and decision-making. I wanted to get those out of the way up top so that we could really dig into how Vlad's decision-making framework works. applies to some of the recent headlines around what are called prediction markets and how Robinhood's deployments of those controversial new trading contracts run headfirst into existing sports gambling laws.
let's put some of that into practice you're big on prediction markets and i have a lot of thoughts there i'm eager to dig into them This is the Rare Decoder where there's breaking news on this show that is not only about org charts. Just before you came on to tape with us here on Friday the 28th, the New Jersey Department of Gaming Enforcement, which calls itself Nudge. asks you to halt bets in New Jersey or prediction markets on March Madness specifically. I'm just going to read the quote.
This activity constitutes a violation of the New Jersey Sports Wagering Act, which only permits licensed entities to offer sports wagering to New Jersey residents on collegiate sports events occurring in New Jersey. It's similar in Nevada. The quote from them, every sports ball in Nevada must undergo an extensive investigation prior to licensing.
They go on. Massachusetts is investigating over this. You've halted, I think, in New Jersey, right? You're complying with a cease and desist there. It's a big decision to go launch in these markets when you know that there's an enforcement authority. Particularly in New Jersey and Nevada where they have casinos at scale. Why make that decision? Why not go to them first and say, are we in compliance? This is sort of like a new ground, right? If you think about the history of how this came about.
you know cal she had a big cal she's your partner on the prediction markets yeah sorry so cal she's um for prediction markets we're operating under the cftc regime which is the commodity futures trading commission They regulate futures and swaps and prediction markets kind of falls under that purview. So we registered to be a futures commissions merchant.
which is basically the equivalent of a broker but in cftc land companies like calci who we partner with for these particular contracts also forecast x which we partnered with for the presidential election prediction market last year. They're called designated contract markets, and they're sort of like the exchange to our broker.
So with all prediction markets, since we're not a designated contract market, we rely on the DCMs to list contracts. And once it's listed by a DCM, which again is the exchange in.
cftc land uh we we can list them on our platform so our view is we want to list all prediction markets we believe that they have societal value in addition to any value they they have as a trading asset for our traders So obviously the line between prediction markets and what should be federally CFTC regulated and what should be under the purview of states who have, you know, gaming, which is regulated and taxed at a state level, that line is going to be debated right now.
And I think Robinhood's a big part of that because we believe in prediction markets. That's kind of the intersection here, particularly with sports. So while we believe that these are CFTC-regulated products, we also recognize that this issue has to be debated and worked out, and it's not very, very clear. So for that reason, we decided to respect the state of New Jersey's demand to halt operating for its citizens, even though we disagree with it.
couple of months we'll be in conversations but as you can imagine there's a lot of states there's a lot of people that A lot of counterparties that could take issue with various aspects of it. And a lot of established interests at play here. So I think this is going to be an interesting area to watch. But I do believe prediction markets are the future. they have societal value across all categories.
Were you ready for this? When you launched it, did you know a bunch of states are going to get mad? We might have to geolocate our services or halt them in certain states. Yeah, I mean, well, we launched without Nevada, as you know. So yeah, of course, we built the capabilities of that, as we have in the traditional non-prediction markets business. so you know crypto also has a state-by-state component to it so for example in new york
We don't offer crypto transfers. You can't transfer in and out. There's differences between the coins that are available on a state level. Up until recently, we weren't in all 50 states. So it's nothing new to us. I mean, there's a... But were you expecting New Jersey to show up and say, turn this off until we deal with it? I don't know if we were expecting New Jersey in particular, but obviously it's not a surprise that if we're in sort of like a...
Yeah, this new area where states have vested interests. to make sure that it's state regulated, that they would have concerns. The argument that you're getting at, the debate that you're getting at, is the difference between a prediction market and gambling. But straightforwardly, that is... What is happening here? The states are saying we regulate gambling in our states. You pay taxes. We have revenue. We want to protect our citizens. This looks an awful lot like gambling. Go ahead.
I would offer you the opposite argument or the opposite view. I know a lot of people who believe the markets are gambling, right? That merely investing in the stock market or meme coins or meme stock. is a kind of gambling that has taken place because it has been democratized by apps like Robinhood and even E-Trade before.
The difference I see there very clearly, right? The stock market, you should be able to look at the fundamentals of some company or its earning reports or its after earnings reports. press conference, it's on like an NBA game and you should be able to derive some secondary value, right? Like I understand what this company is doing. I understand how much money it's making, how much money it's losing, where it's investing, what this opportunity is.
I can draw some line to its future stock capability. And that is The most important thing that sort of undergirds the market, right? That's the argument against the market is gambling. There's some mathematical reality there. What is that same argument for a prediction market? Because sports doesn't have, you can't go look at the Lakers and say, well, LeBron's there, so they're definitely going to win every game. That's just not how it works.
You're making a valid point. I think the line between gaming and gambling and finance is like a debated thing, right? There's people that will go on Twitter and say, Anytime you're taking risk, it's a form of gambling. And I think the term is Not properly defined and specifically defined, which I think adds to the confusion. And in particular, when you deal with derivatives markets, which I think prediction markets are a subset of the overall derivatives market space.
types of market participants. There's folks that are coming into a market to hedge, right? And if you're a farmer, you're sensitive to crop yields and rain and weather and all sorts of things. One of the original use cases was for these derivatives markets to apply to farmers, for them to hedge their exposure so they can kind of smooth out their returns and their risk over time.
And actually, for these types of historical reasons, The CFTC and these derivatives markets are overseen by Senate Agriculture, which is kind of like a weird historical.
fact and now you know crypto being in there has the has this has a side effect of senate agriculture overseeing crypto but yeah it's the historical reason of futures and derivatives being especially valuable to farmers so you have hedging which is one use case right but you also have speculation speculation is people just making predictions on what the price is going to be in the future.
And without the speculators, it's not an effective market for hedgers because hedgers can't always, you can't just have people taking the opposite view of what's going on in reality because then it won't be effective hedge. So you need the speculators to be in there speculating in order for the market to be liquid. And then you also have arbitrageurs and arbitrageurs, which is how I began my career as a trader.
They just look at all markets and using technology, compress the prices. And if you have the same thing trading in two different places, you just buy it where it's cheaper, sell it where it's most expensive, and eventually the prices converge. So these are the three types of participants necessary to make any derivatives market work.
And so now your question is, if you look at folks that are speculating, is there a difference between speculation and gambling? Let me make that question more specific, just based on your example. My father-in-law is a farmer. I married a farmer's daughter. The utility of him being able to hedge is very clear, right? Yes, it's historical. And yes, now the regulatory scheme has this quirk of agriculture overseeing the derivatives market, but we all still got to eat.
So the utility of that remains exactly the same as it was when these regulations were initially passed. And then you need to do some market making, right? You need to have the speculators and the people doing arbitrage in order to create the market for the hedging. But the utility of that for the farmer and then downstream of the farmer, us literally filling our plates is obvious.
What is the utility of that for sports, for the Lakers? Like, are you trying to hedge against the risk of losing for the Los Angeles Lakers? I mean, I'll tell you that. Sports is a big industry in the U.S. There's lots and lots of different types of businesses that rely on sports and the sports industry economically. And it's gotten much bigger. You know, it's not just like fans, but
sports betting since that's been legalized has just grown to tens of billions. Do you think that's good? Do you think sports betting is good?
Do I think it's good? I mean, my view is... people should be allowed to do what they want with their money i think that markets are good generally individual accountability is important and there's folks that trade very very actively and process lots of information and actually are like quite scientific about taking advantage of of mispricings and you know as a former arbitrageur i do think that that that has value so I think I want to get away from actually
Trying to judge every contract on an individual level because I think, you know, you can get into trouble. Of course, maybe I can come and give you examples of contracts that I don't think. are great and I wouldn't trade personally, but I think prediction markets does have significant societal value. And I think it should be, it's an evolution of what the newspaper served in the past. You have the front page, which is events that people want information of.
uh that are trending right now then you have the business section arts and leisure style and of course you have sports and the newspaper obviously had value i mean people were paying for it after the fact right prediction markets actually give you that news faster in some cases before it even happens So I think certainly it has enormous economic value. And I view sports as kind of a subset. It's one of the categories of information and news that people really, really care about.
That's why it's so interesting to people and people are going to want to protect their purview over that domain. Yeah, I would distinguish prediction markets from gambling in that way. I'm generally, I mean, I have mixed feelings, obviously, about gambling in general.
prediction markets i'm a i'm a big believer in when i said i had 900 pages of questions by the way that thing you said about information that's 850 of those pages so we're going to get into that but i just want to stay on this for one more second What specifically, to the user, as expressed in your app, is different from betting on sports?
versus buying a contract in a prediction market. Because I looked at Robinhood today and I understand there's some difference and there's some vocabulary differences. But what I saw was I'm looking at March Madness, and if I pay 80 cents for a contract and this team wins, I'll get a dollar. And that feels a lot like that. Yeah, one of the big differences is with traditional sports betting. It was Auburn, by the way. I don't know if they won or not. Yeah, they're the one seed.
So traditional sports betting, let's say digital sports betting, not even on-premise stuff. there's a house which means that when you enter a bet you're basically betting against the house and with that comes all of the negative effects like There's no market. The house is just giving odds. There's a line. They're setting the line. And, you know, if you win too much, you get kicked off the platform, which is unfortunate.
You also, in most cases, once you're locked in, you can't get out of your bed. so because this is a market there's no house buyers and sellers are meeting directly in an exchange we're crossing orders which facilitates price discovery. So since there's no one setting the line, the market sets the line, it becomes a more effective prediction. And from the user standpoint, the spread gets tighter for a variety of reasons. Price discovery leads to tightening of spreads.
so i think that's the major thing there's no house buyers and sellers meet you can get out of a position during a game which uh at you know betting platforms is Not a commonly offered feature. So it's, it's very similar. You get all the benefits and the power and the rigor of financial markets. So, but just to the base level, you're. Some 20 year old kid downloads this app and they want to wager on March Madness.
The technical implementation of put in some money and get some money out if the team you've predicted to win wins. is different. And I think the regulatory approach you're taking is different, right? You're saying these are effectively derivatives contracts and you should be regulated differently because it's not traditional gambling. But the effect on the user...
The reason we regulate gambling is because it has bad collective effects in society. People can get addicted to it. They throw their savings away. There's a lot of reasons outside of the technical implementation of the house that's aligned and can move against you. There's reasons that we regulate it. Do you think those reasons are applicable to what you're doing with derivatives contracts? Because I look at it from the user pushing a button.
And the button says if they win, you get money. The technical implementation of that doesn't really matter. I think some of those reasons are applicable. A lot of the origins of the state-by-state regulations come from a world where... You actually had like physical places where you would go. Right. And so like. These turning into digital platforms in and of itself, not even CFTC, but also state-regulated gambling, those are new things. So I think the regulations have to evolve either way.
But yeah, certainly we want to make sure that you know suitability and all of those checks are followed through. And I think actually the traditional financial markets, futures markets are highly regulated. You do KYC, you do monitoring and surveillance. There are suitability checks that make sure people really know what they're getting into and they have to self-certify. And I think that's a benefit for prediction markets being in the CFTC regime because you have high standards.
i mean saying that saying that these are financial markets isn't in my opinion a lowering of standards in in any way i think it's a heightening of standard Well, the standards don't exist yet. I think that's right as applied to this specific thing. The standards exist abstractly for derivatives markets, and now we have to apply them to this behavior. And at least some states are saying, actually, this just looks like gambling to us. Yeah, but what I'm saying is like...
CFTC regulated markets are highly regulated. It's, yeah, I don't think, yeah, it's not accurate to say that there are no standards because following the CFTC standards, which are very rigorous.
One of the things I worry about with our audience, we have a lot of young men who listen to the show, who read The Verge, is A sense that these types of markets, whether it's crypto, whether it's the regular stock market, whether it's derivatives, whether it's prediction markets, whatever it is, whether it's just fantasy. is a quicker path to riches than... regular work. Is that how you want people to perceive Robin Hood, that this is the future of the American dream?
I did write an article back in, I think it was 2021, about how the American dream itself as a concept has evolved. It used to be very tied to home ownership, right? You'd buy a house, you'd get a 30-year fixed mortgage, and that was kind of the American dream. And that that's actually not ideal from an investment standpoint. Like the amount of interest and fees you're paying on that, if you view it from an investment standpoint, is actually.
incredibly high. And if you're going into US equities, which are now commission-free, very, very low cost, that the American dream should perhaps evolve towards US equities. i didn't make the claim that you know it should be crypto and derivatives or all these things and in fact a couple of days ago we actually crossed the bridge from being sort of a purely self-directed platform into offering investment advice with Robinhood Strategies.
And if you look at kind of the asset allocations of the portfolios there, it's very much like. listed equities and ETFs. And then if you actually look at what we incentivize as a business, what we're giving matches for, it's things like retirement, where you get a 3% match on contributions. I think I would distinguish between what the right way to invest is for the bulk of your money, which I do think for most people that have income and assets.
should be passively managed. But also, I do think people that have the income and can passively manage a portion of it. I don't think it should all be passively managed. I think there is a room in your portfolio for every person for it to be actively managed.
and that could be in things that you have high conviction in whether it's individual stocks cryptocurrencies options if you're at a startup you know you implicitly have high conviction and lots of concentration in the company that you're actually working And if you consider yourself an expert in an industry or even sports, I think the derivatives markets live kind of in that bucket. But yeah, I wouldn't say, yeah, if you look at Robin Hood, the actual mission and the future vision is for
us to manage every dollar. And I don't think every dollar should be in derivatives markets, probably a small portion of them. But the reality is People bet on sports, people engage in derivatives trading, and that's money that's leaving Robinhood accounts. So if we can serve all of those dollars with our platform in a seamless and easy way at the lowest possible cost and the best user experience.
Then we'll have full wallet share with our customers across multiple generations. And I think we could both add value and build a significant and important company that way. We need to take another quick break. We'll be right back. This episode is brought to you by On Investing, an original podcast from Charles Schwab. I'm Kathy Jones, Schwab's Chief Fixed Income Strategist. And I'm Lizanne Saunders, Schwab's Chief Investment Strategist.
Between us, we have decades of experience studying the indicators that drive the economy and how they can have a direct impact on your investments. We know that investors have a lot of questions about the markets and the economy and we're here to help. Join us each week as we explore questions like how do you evaluate corporate bonds and what sectors of the stock market are outperforming?
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including loss of principal. Brokerage services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA and SIPC. Complete disclosures available at public.com slash disclosures. We're back with Robinhood CEO Vlad Tenet. Before the break, I was pushing him on the distinction between sports betting and prediction market.
and whether he sees what Robinhood offers to its users, many of whom are young men, is a different kind of American dream oriented around taking risks to make money. But I also wanted to dig into that risk component a little deeper as it relates to prediction markets. I wanted to explore the kinds of information these markets are supposed to provide us, where it actually comes from, and what happens when you apply the same incentives that come around gambling on sports.
to things like presidential elections. Let me ask you about information and risk, right? What you're describing is a spectrum of risk, right? You've got your new bank, you're paying people about a 4.5% yield.
That's low risk, right? That's just your bank. And all the way on the other hand, you've got prediction markets for sports, which are maybe the most risky thing you can do. And then in the middle, you've got your thesis about information, right? Prediction markets are this new source of information. The thing that gets me is when you make prediction markets, the value of the information skyrockets. And then you have a lot of incentive. You've created an enormous incentive to affect the outcome.
So in the best case, you work at a startup. You've got stock in the startup. You have a huge incentive to affect the outcome positively. The company will be a success. You're going to work really hard. You're going to make a lot of money. I look at the NFL, for example, I'm a big NFL fan. The amount of time we now spend talking about referees in the NFL and officiating because of gambling has gone up. The notion that the league is scripted and that the games are rigged.
because any individual referee can make one penalty call at the end of the game and shift the outcome, has skyrocketed because of the inclusion of gambling by the NFL into the product itself. That feels like a bad outcome, right? To create all of these incentives to shift the outcome without any regard for the quality of the outcome itself.
How do you manage the prediction markets against that incentive? Because I see that as totally distorting and in most cases negative. I think that's a great question. And I think that's one of the areas where... The traditional financial system already has lots and lots of infrastructure because we've faced this problem for
Right. Like you have insider trading rules and regulations, and it's very analogous to a company insider using proprietary information for their own benefit to make money in financial markets. like that very much exists. There's also anti-fraud, general anti-fraud. protections that go into place when you're not dealing with securities. So if you remember, Coinbase had a case a couple of years ago that was actually DOJ.
coming in and what they found was that some employees used knowledge of forthcoming listings of, I think it was some meme coins. bought those meme coins because they knew that they were going to be listed and made a bunch of money. And of course, this was caught and tracked by surveillance and they got in a lot of trouble.
So I think generally the same principles apply. Sure, but how does that track with your sense that this is the new source of information? Because the information only enters the market if people have it and they begin trading. so if you want to outlaw insider information you have to prevent people who have that information from trading on it so how does that get into the prediction
Yeah, I mean, basically, individuals who have proprietary information shouldn't participate in the prediction markets. And, you know, all of the DCMs basically have rules against this. And because we know who's making the trade. Right. I mean, everyone has to be KYC that, you know, DCM, FCM regulator prediction market.
we have the capabilities of identifying abuse and of course all of these rules can evolve over time so if there's new vectors for abuse as the markets expand there's mechanisms for for those to be incorporated and to become new rulemaking. And, you know, hopefully the rules should evolve as with any system. And if there's like new vectors... coming in, then we can evolve the rules to account for those.
I'm actually not sure if there are new vectors that aren't accounted for by the existing rules. And I think this is one of those things where, because the state regulatory regimes are... haven't really accounted for this they they may be less well positioned to oversee abuse uh than you know The federal level. Where does the information come from then? If I'm looking at a prediction market on Robin Hood and the line moves sharply.
That's the information you're talking about. This is a new source of information. You're going to get it before the news gets it or the traditional media gets it. You're going to watch that line move and you know something happened before everyone else knows it happened. How do you get from that second order effect, the line moved, people started moving their money against some new information, to the information itself? In the same way it happens in financial markets.
Right. You have sophisticated participants. Some of them are retail. Many are institutional. That actually makes sense of all of the data that's coming in in real time and actually crunch the numbers and see what it means. A lot of this is happening using automated computing methods. They're crunching all of the data. You can think of it as Let's say you're watching the news on election night and you're getting all of this polling data and all the early returns.
from the polls and you know they're telling you oh ohio results just came in and you know there's this many voters in ohio out of this many that that are reported I mean, there's a process by which you take that and actually price what the likely outcome of the election is. And so the people that are really good and fast at doing that.
have an opportunity for profit. That opportunity for profit isn't the information itself, though. That's what I'm getting at. That's your, I mean, I've heard you say the information line before. You said it to my friends Casey and Kevin on Hard Fork.
You said you're going to get information before it happens. Prediction markets are not the future of trading, but also information. What prediction markets are is the news faster. But here you're saying prediction markets are reacting to the news, right? They're reacting to information.
So if you're a regular Robinhood investor and you're looking at the line move, how do you get back to, okay, the smart money made some decisions. The smart money is watching Harry Anton say on CNN, here are where the votes are. And now I'm repricing the contract. That's not the news, right? That's a derivative of the news. Yeah. I mean, I guess this is also an area where... There's ambiguity in what we're saying.
I think traditionally what I would say the news about the election is when the news networks call. Election news is probably when CNN and MSNBC, NBC and all those networks say, OK, Donald Trump's the winner of the election. So that happened. the next day in the vast majority of cases. So the news of who won the election hit next day, but the prediction markets priced Trump at 95.5 within a few hours of the polls opening, right?
So I would call that knowing the news before it happens. I mean, if you were paying attention to the prediction market. you knew what the outcome of the election was, you know, and within some band of error, but I'd say 95.5 is pretty good, right? Right. The difference for the media outlets is they can't be wrong.
Or at least when they're wrong, there are consequences for them being wrong, right? They lose their credibility or they have to issue retractions or Trump sends them all to El Salvador or whatever he wants to do. There's not a consequence if you trust the prediction market and it gets it wrong. The consequence is you lose money. How do you think about that accountability? Well, I think that the accountability is only part of the story.
I think the other part is that There's an incentive to keep viewers glued and entertained and you you want them to watch for longer so you don't want to just be like oh the election's over you know everyone can go back to what they're doing they have an incentive to actually prolong it and say hey you know it's still anyone's game anything can happen you know keep watching right
It's the same thing for sporting events, actually. I remember I was watching the Jake Paul-Mike Tyson fight. That wasn't available in U.S.-based prediction markets, but I opened up Polymarket to just view what was going on, right? the prediction markets had it quite clear it was like 90 10 jake paul but if you listen to the announcers it was like oh you know all mike needs is just one punch or he just needs to hold out a little bit longer and
You didn't know the outcome of that fight before it started? I knew the outcome of that fight before it started. And I know why lots and lots of people were betting on it, but on Paul and... They knew why the fight was stretched out the way it was. Right. I mean, like, that's the danger. What you are describing is the danger. Here's this totally synthetic event that we're going to make people pay for and then have people bet on. And then everyone will believe at the end that it was.
And the answers have nothing to do with it, right? It's the distorting factor of the gambling that occurred around it that made everyone think, oh, this is totally rigged, right? Both Mike Tyson and Jake Paul got a lot of money for participating in this thing that most people believe was a shit. And they had a lot of incentive for the outcome to be, make it a little bit longer.
Make it feel like this isn't totally a joke. And everyone knows that that's what happened. Or at least they perceive that they know. And that's the distortion that I worry about. I don't have any details about that, but my point really was... I think to your question, I don't think the only incentive is for the media to get it right. I think the incentive is actually to have people watching longer, which sometimes conflicts with giving you the information as quickly as possible.
so i mean i think you have to agree that that's the incentive right i mean I think platonically, yes, like the media is held to a very high standard. You have to get it right. And we'd like to think that everyone is working with that in mind. But there's also a strong incentive to maximize viewership, to maximize time spent versus.
other networks, because if you don't do that as a media enterprise, eventually you're drained of resources and you die. And I think sometimes that incentive actually can contradict with. getting you the absolute truthful information as quickly as possible. Yeah, I mean... I work in the media. I would say there's an equal incentive to be first.
And that is equally damaging. If somebody who runs this race every day, that's equally distorting. But then on the flip side, I would say it's also not working. The media is losing jobs and it is dying and it is falling in relevance. And there's a lot of reasons for that that I don't think have anything to do with stretching out the information. But what I just keep coming back to is the incentive to change the outcome by allowing people to have a financial stake in it.
seems very, very distorting. And there might be some rules against it. There might be some rules in, like the NFL does injury reports. Because getting access to the injury report early was helping gamblers, and the NFL wanted to tamp down on that. And that's the history of the injury report. I get it. We're doing transparency. We're doing regulation around this stuff to try to control it.
But here it seems like the regulatory regime is new, where you're trying to fit a behavior into a regulatory regime that wasn't built for it from the start. And you've got a lot of young people taking part in this behavior who believe now that everything is right. Right. That the world is a casino of this kind. And that seems this is what I was going to ask about. That's where you have to make the turn from startup founder with a disruptive idea to I am the CEO of a.
Right. Like the responsibility rests with you. And I'm wondering how you're shouldering that burden. Yeah. Because once you have the bank accounts and you can move it into the highest risk category, that's a big deal. I think that is a criticism for sure. I think in sort of a more. precise form. It's basically like Do you want your betting in the same app as your bank account can these things coexist under the same platform i don't think that it's the highest order criticism because
If you think about it, all these things are on your phone, right? And so it's like... Fairly straightforward. And now, you know, everything can link to your bank account anyway. You know, if you had a DraftKings, you could link your DraftKings to your bank account pretty easily and move money back and forth. So we kind of get into this like, well, but should they be separate apps? Should they be separate brands? Do we want the same thing?
I mean, the reality of it is everything's on your phone. It's all your phone. It's pretty easy to just like go to the home screen, tap a button and go from one service to the other. Yeah, I actually don't think that that criticism is higher order. Basically, it's just a completely meaningless decision. It's a business decision. It's sort of like, where do customers want it most? Because if they want it in the same map...
Functionally, there's no difference between it being in the same app and being in a completely different brand elsewhere on your phone because the difference between going from one to the other is like... There have been some good reasons in the past to separate these at the corporate level, right? And I hear you that it's pretty easy to just move money into FanDuel, but...
Right. There was the Great Depression. And then we did Glass-Steagall. And we said the investments and the banks have to be farther apart. Then we allowed them to get closer together. And we had the 2008 financial crisis. And then we moved them slightly farther apart. And now you're saying, look, because of phones, this distinction is meaningless. But history suggests that bad things kind of happen when you let investments and banking get closer together. Well, but that's for...
safety and soundness reasons, right? You don't want the same organization to be over levered and to take proprietary risk with their capital when they're also supposed to be safeguarding that capital. We're not taking proprietary risks because we're just a broker routing orders to a marketplace where buyers and sellers interact. The safety and soundness concerns that you'd want to separate proprietary trading from retail banking don't apply in this case.
Don't the concerns apply to the individual consumer, though, who is less sophisticated than banks, who often get themselves into trouble? Well, I mean, again, that's the point of the individual has money. They have a bank account. They're moving things to different accounts. So it's the same thing from their perspective.
It doesn't affect them whether those accounts are at different entities or one, barring safety and soundness concerns that are entity concentration, which don't apply in this case. Would you accept a regulation that said when you open the Robinhood banking app that you were prohibited from advertising or marketing the derivatives products in the Robinhood app themselves?
Possibly. Yeah, I mean, I haven't thought about that. I don't think we should accept new regulations lightly in any sense, but I'm certainly... a believer in regulation i mean i run many highly regulated businesses um So yeah, I don't want to just be glib about it and say, oh, that sounds like a good one. You'd have to... you'd have to look at the pros versus the cons deeply. I generally think that we get into trouble by
having lots of regulations. We don't have mechanisms to remove them. So kind of like once it's added, you just keep building this like... giant, thick underbrush of regulations and nobody ever wants to remove them. And then, you know, now we're in a situation where As a country, we're looking around and saying, how do we get here? We can't do anything anymore. You can't build a bridge. You can't trade crypto.
And I think that's a problem. So I think I generally agree with some variant of for every one you add, you should probably remove one. So, you know, things change and the regulations. to large part don't make sense i mean i'll give you another example accredited investor So this is probably one that maybe you'd agree with even because it's less controversial, but accredited investor rules basically stipulate that
You can't be investing in OpenAI or SpaceX unless you're accredited because some variant of they're too risky. And why are they too risky? Back in the day when these regulations were created, it was hard to get information. There were no prediction markets. There wasn't the internet. So, I mean, there was a lot of murkiness and maybe the wealthy folks had access to information and enhanced due diligence. Normal people didn't. So we have accredited investor rules.
Now we're in a situation where meme coins are fine. You can put all of your money, anything you want, in meme coins. sports betting, whatever have you. But OpenAI or SpaceX, companies like that are too risky. Those cannot stand. And as you can probably tell from our conversation, I don't think we should ban trading and meme coins and sports betting. People should generally be allowed to do what they want with their money. And so I think the accredited investor rules need a complete reboot.
probably something closer to self-certification and some requirements for brokers and platforms like ourselves. to put these things into buckets based on how much disclosure they have you know maybe if you're an early stage startup and there's no disclosure we have to put a skull and crossbones in red and tell you this is a incredibly risky thing. You could lose 100% of your money. But yeah, I think the status quo needs a serious reboot.
I just had the idea of Sam Altman doing a meme coin to fund Opening Eyes expansion. It seems more likely than not. Let me ask you about crypto just to wrap up here. I have another 850 pages of questions about crypto for sure. Let's do it. Why should anybody sell a Bitcoin? My general philosophy for myself is I've only ever had regrets selling investment. So pretty much I think like I tell people all the time when I was in college, I bought Nvidia stock.
And I thought NVIDIA was a great company. They made amazing GPUs for playing computer games. Doom 3 at the time was my favorite computer game. And so I bought it for that reason. And I think I got it at 20 and sold it at 30. And I felt really, really good about myself. So I think everyone has those stories of... something like that where they exited a little bit early. So I think people should sell. I mean, my own philosophy, I'll sell if I have to.
But generally speaking, I'm more of an accumulator. I like to accumulate things and hold on to them for a very, very long time. But people have different needs. Sometimes you need to buy something, you have an expense. and you don't have that luxury. So in that case, the fact that these markets are liquid and you can sell and get a good price. is very very important and imagine you're someone who bought bitcoin in 2011 you know when you got it at what was it one or two dollars a coin
Yeah, I think it's not unreasonable for someone like that to sell at some point along the way. I ask that question because my thesis is people only care about Bitcoin because of Dolph. Right. It's the value of Bitcoin as expressed in dollars. It makes everybody care about it. And if there's no reason to get rid of one unless you need the money in dollars.
then you will never transact in Bitcoin, right? It will never stabilize to the point where buying an NVIDIA GPU in Bitcoin is a better idea than buying it in dollars. And if you can't get there, then we really do just have a store of value, right? We just have another thing. We have digital gold. And you run the platform. And I'm wondering if that's your view as well.
The properties of Bitcoin right now are much more conducive to it being a store of value than an actual mechanism for transacting and buying things. I think the fees are really high. And it's very, very easy, including using platforms like Robinhood to take your crypto or any other asset.
convert them back to dollars for when you need to transact so but i don't think that's unique to bitcoin i think stocks can essentially be thought of as a store of value from the retail investor standpoint nobody's sending little bits of stock between each other to pay for things. But when you buy a stock, you have a thing, right? You own some insignificant part of a company. You have voting rights. You could fire the CEO maybe. There's a tangible value to owning the stock besides.
the stock itself yeah yeah i do yeah but but what i'm saying is i don't think that it not being used for payments like really puts a ceiling on its value i think that actually It being a medium, I think the medium of exchange use case is becoming less and less important over time. Pretty much anything can be a medium of exchange. I mean, imagine if everyone had Robinhood accounts. Basically, if you wanted to pay someone, you'd only need to convert it to dollars at the moment of paying them.
the recipient can convert it into an asset that appreciates more and you would obviously have probably a small portion of your portfolio in actual dollars. So I think medium of exchange was more important. when fungibility was much more difficult like it was back in the day. But now fungibility has never been easier. And so the store of value use case probably dominated.
It's weird that I have one vision of the economy that's like everything is a casino and another one that where everything is Disney buck. And I don't know how to reconcile those two things. Well, Disney owns ESPN. So there you go. We'll all be gambling in Disney bucks. It's going to be great on ESPN.
In order to keep the value of Bitcoin or any of these store value coins high, you need a constant buyer. Do you think the Trump crypto reserve is a good idea? Because that's the purpose it seems to be served. Well, I'm not sure. And I kind of think of this, I mean, we get the question ourselves about should, you know. Robinhood as an entity have some of its balance sheet in Bitcoin. You know, every other company is doing that. Why aren't we doing it? And again, I come back to.
we only follow the crowd when they're right. So, you know, we obviously haven't jumped into crypto on the balance sheet yet. I think part of the reason why is It's not critical to our purpose as an organization. I mean, of course, if we incidentally had some crypto as part of serving our customers with various activities. We can and do do that, but we also don't want to become some vehicle for people that just want exposure to Bitcoin to buy our company.
And I think generally speaking with the U.S. government, I think you can make the argument that the U.S. spends money on a lot of things that are worse than Bitcoin. And I think that's true. Boy, do I disagree with you on that. Also, buying Bitcoin is not a service, right? I mean, the government mostly spends on services for the citizens.
Do you think the reserve as announced is the right mix of holdings? I've heard it called a shit coin reserve because it has Solana in it, right? Like you trade on all these coins, the platform enables all these coins. Is it the right mix of holdings in the Trump reserve? I think that generally what they announced was not selling the coins that they sort of like seize through various mechanisms. I think that's fine. That's probably the most I would have done if this decision was.
was up to me and I think there's reasonable reasonable arguments to be made for that I mean like selling something is also a affirmative decision, you're moving a market, you're doing something by, by selling it. And, you know, again, my personal philosophy, I've only had regrets when I've, when I've sold stuff. I actually think what they outlined was reasonable. Now, you know, depends on the details of what budget neutral acquisition of.
Bitcoin could be, I think that's a fairly high bar for it to be budget neutral. So I think we'll see. But yeah, probably, I think it's reasonable. It's a sensible approach. I don't know if it was my decision. I don't know if I would have gone further. Probably not. Part of your new banking service is that you can get physical cash delivered on demand to your doorstop because you don't have locations, obviously. How on earth does that work? Are you mailing cash to people?
No, we are using on-demand delivery logistics. So we haven't announced our partnerships yet, but we're not actually doing everything ourselves. Yeah, it's basically combining the power of on-demand delivery logistics with financial services to bring the retail bank to you. So if you look at digital banking before Robinhood, there was always a sacrifice right you had a nice convenience of the digital app but there were no branches and so
If you wanted to get cash or even deposit cash, but most likely withdraw, you'd have to go to a 7-Eleven or a CVS or something. And nothing against going to 7-Eleven. I love 7-Eleven. It's not quite the private banking experience. In fact, private banking experience, I was a FRB client, First Republic Bank, and they had this amazing feature where they would deliver cash to you. So it is a high net worth.
uh feature but of course it would be slow it would be super expensive it would be for a lot of cash and it would come in a armored vehicle So we asked ourselves, how can we kind of make that experience for everyone? And this is what we came up with. I think we're excited to roll it out. Are you going to roll up an armored truck to people's houses? Probably not for a small amount. But if you think about it now. Like an armored mini. So, I mean, people already get.
iPhones delivered, right? And an iPhone's an expensive item, you know, $1,000 give or take, a small expensive item, high ticket charge. My estimate is average ticket charge for a cash delivery order offered by Robinhood is probably going to be in the low hundreds of dollars.
similar dollar value to a delivery order maybe maybe a little bit higher but probably not quite as high as delivering apple products so i think if if you wanted to get a quarter million dollars delivered you need an armored truck and you know we'd like to facilitate that as well but for your typical atm like transaction The idea is that that would be a smaller amount. It would get delivered to your house. And we'd like to figure out how to do it outside of your house too. If you're like.
out at a place that's in a service area but that's a little bit more complicated but yeah if it could come to you in 10 or 15 minutes I think there's real value there. You know, 16% of payments in the US are still cash payments. So even though we'd all like cash to go away, cash is still very much a giant part of the economy here.
Yeah. Well, I think you can tell. I could talk to you for hours and hours about a wide variety of things. We're going to have to have you back just to talk about the logistics of locating cash around farmers markets throughout the country. Because that's very exciting for me. Vlad, this has been great. Thank you so much for being on Decoder. Thanks so much. Thanks for the time.
I'd like to thank Vlad for taking the time to speak with me, and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode, or really anything else at all, drop us a line. You can email us at decoder at theverge.com. We really do read all the emails. You can also hit me up directly on Threads or Blue Sky. And we have a TikTok and an Instagram. Check them out. They're at DecoderPod. They're a lot of fun.
If you like Decoder, please share it with your friends and subscribe to our podcast. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright. The Decoder music is by Breakmaster Cylinder. We'll see you next time. Support for the show comes from Grooms. If you're looking for a new tasty nutrition solution, then look no further than Grooms.
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