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Hello and welcome to another episode of the Odd Lots podcast.
I'm Joe Wisenthal, and I'm Tracy Alloway.
Tracy, here's something that surprised me. Okay, so it's twenty twenty five.
I would have thought, you know, are you surprised it's twenty twenty five.
I'm surprised we made it this long. I'm surprised.
Fair, that's fair.
I am surprised, you know. And I think back to twenty twenty one and like the crypto boom of that ear and the stock, the spac mania and all that stuff, that craziness, Like I sort of thought, to some extent that would have been a little bit more flash in the pan because you know, like ninety nine, two thousand, a couple of years later, like people were not talking
about dot com stocks like two years later. Because I'm like, I thought it was going to be a repeat of that, all of this retail obsession with options and call options and speculation, etc. I thought that'd be a thing, you know, short phenomenon. A bunch of people lose their money in twenty twenty two and twenty twenty three when some of that stuff busts and then they lose interest and they go on to other things and sort of forget about
trading for a while. But I don't think that was an incorrect assumption on my part.
I think people discovered that they really enjoy losing money. It is, yes, okay, genuinely. What I would say is this all started in the pandemic, right, Yeah, to some extent, But I think crypto opened the door to this idea that you can have a number on a screen and just bet whether it's going to go up or down, like basically a synthetic number. Almost right, It's just this token. And then what happened during the pandemic is everyone was
really bored. Game stop became a thing. Everyone kind of discovered that momentum was maybe more fun to play than boring stuff like value, and I was, you know, it did honestly feel like a cultural shift when it came to the way people were thinking about trading. And I'm not I guess I'm not as surprised that it's it's continued to this day, and if anything, this sort of tokenization of the stock market, people playing options, people playing crypto has become bigger than ever.
It's just a cultural shift. It's also like everything has a price now, which I think is very important. Like today, like we're constantly looking at prices for politics right now, We're constantly looking for prices related to geopolitical events on sites like Kelshi or polymarket, et cetera. It has expanded so much so there's crypto, there's options trading there, et cetera. Like we are like drenched in a culture of like there's a price on something, there's a thing that's going on,
you can trade it. And I now think, you know, it's gonna be with us forever, because it clearly was not just like a you know, a one year sort of zerp era every on board at home phenomenon.
Well, it's not just that you could trade it. You can trade it really easily.
Yeah, right.
You can just open up your phone some things you can trade twenty four hours a day and just make or lose money as you choose.
I love making or losing money as I choose. Anyway. One of the companies that we really associate with this sort of boom and retail participation that era and that of course is robin Hood, the company that was famous for being the first to introduce fre stock trading just kind of mind blowing, and lots of people use it. For many people is their introduction to trading options and stocks, particularly during the pandemic associated with the meme stock there,
which kind of still exists. Anyway, we have the perfect guest go on what we're gonna say.
I was going to say, Robinhood in my mind like definitely caught the wave of this cultural shift at exactly the right time. But it's also, in my mind like an ode to the importance of user interface. Genuinely, the app is just more interesting, more fun. I guess some people would say, more easy to use than a lot
of other things. This sounds like an ad I don't mean it to be, but I remember, for instance, when you know, when you used to make trades on robin Hood and you would get like a little confetti animation every time you did it. Like can you imagine TDAM error trade or like Schwab or something doing something like that.
Uh. The one other thing I'll say about them is they're doing phenomenally well. The stock is like back at like basically at all time highs. It's not just a company that offers free trades I think they have like nine different units at one hundred million dollars annual run. Raid Truly, I think it is becoming a juggernaut anyway. Thrilled to say we have its CEO and founder, Vladteneve on the podcast today, so in studio Flad, thank you
so much for coming on the Outlaws. Thrilled to finally be chatting with you.
Thank you for the warm welcome. It's great to be here.
That cohort that came into markets in like twenty twenty and twenty twenty one, that sort of you know, whatever that cohort was, did they behave differently today than say the twenty nine teen cohort or the twenty eighteen cohort? Is there something about them that if you look at say trading in April during the volatility, is there are they different?
Yeah, so I should rewinding four five years at this point time ago, there were lots of people that came into the market for the first time in twenty nineteen. In twenty twenty, I think right before the pandemic, I was in New York and I remember that visit because it was sort of like before everything got weird. We announced ten million approved accounts on the platform, which was a crazy number for US, but Robinhood was already quite big even before the pandemic started, So we had ten
million approved accounts. It was like pretty clear that we had created sort of the new era of retail investing because before the pandemic we were a Series D company, so like late stage private company. I think the valuation was something like seven billion. We had a few hundred million in annual run rate revenue, and basically the entire industry ended up having to replicate our business model in order to survive, and not all of them could survive
as independent entities. You know, tedm Miror Trade had to get folded into schwab e Trade, which was sort of like the leader of the prior disruptive era in retail trading, which was the dot com era, had to get folded into Morgan Stanley to survive as a standalone company. And so we were already I mean, we had already accelerated and kind of turned back the clock. Everyone was saying retail trading and investing was over. Everyone was indexing into
et passive was the new thing. So there was a lot of skepticism, but we kind of inverted that, and then you had the pandemic, where pretty much across all of our business metrics, which we already thought were doing well,
we kind of increased an order of magnitude. And I think the behavior of customers as a result of the pandemic is a bit of an intricate question because there have been so many things that happened in the macro since then, and we have so many different types of customers, So to like dramatically oversimplify, you could think of Robinhood as having two diametrically different classes of customers. One is
the active trader, and these are the folks. To give like a motorsport analogy, right, the active traders are the folks that are like motorheads, Like they care about performance, they care about having like really fast cars. They want to be at the frontier of technology and innovation.
Said that people posting loss porn on Wall Street bets.
Right, not necessarily. I think some of them are. I think that that's a more general.
Can we talk about lost porn later? To keep going, These are the folks that are like strapped into their battle stations and have like nine monitoring the situation exactly.
Some of them are incredibly sophisticated and wealthy, and they even have Bloomberg terminals, or it would have been sort of like the Bloomberg terminal customer. And so that's like a higher net worth, very active group, small group, but premium. And then we have to come back to the motorsport analogy. The folks that buy minivans right the mass market, they just want to invest. They want a relatively hands free and sort of like low friction way of investing and
saving for the long term. And we have products that serve both of those. So we want to be number one in the act trader market. We're rapidly we're rapidly gaining market share there. But also we want to be the place where if you're a millennial or gen Z customer, you put all of your wealth, so you deposit your bank account direct deposit in there, you do all of your spending with us with our credit card. Of course, you do your trading, but you also have your retirement
account your long term passive investments as well. So we're kind of focused on both of these things with two very different customer bases. And I say it's oversimplifying because you also have customers that have both of these behaviors. So a lot of our active traders they also need banking tools, they need spending. They have a passive portfolio, which can be larger elsewhere, but not everyone is an
active trader. And so also since COVID, you had a whipsaw of low rates, zero interest rate environment which made stocks and more speculative, higher growth investments more attractive. But then we whipsaw to the highest interest rate environment we've seen in multiple decades, and then Robinhood had to respond
very rapidly and aggressively to survive in that environment. And we introduce things like retirement, like the highest apy in the industry on cash, so that you could earn interest while your cash was sitting there, and you know, just a ton of diversification of the business so that our customers who became less interested in trading during that time could could find ways to you know, take advantage of the environment and capitalize with their strategies.
So, I know, one of the initial competitive advantages you had was the zero trading fees, but beyond that, you know, I mentioned in the intro that, like, I honestly think Robinhood is sort of a I guess a story about the importance of user interface, and some people would say that's a great thing. You know, users can come on and you can transfer money relatively quickly. It's very easy to set up and execute a trade. You can basically do it without typing very much while you're sitting at
a bar or in a restaurant or whatever. But you know, you also have things like the screen itself is very colorful. It photographs well so that people can post those screenshots on forums like Wall Street bets. I guess my question is, like, to what extent would you attribute the success of the company versus old school competitors to that user interface or maybe the gamification of stock market trading, which you really, you know, you played into at exactly the right moment.
I reject the gamification premise.
You don't think the app is designed really well.
I think it's designed well. But I think when I think about so, obviously, I grew up as a gamer, so I'm a bit of a student of traditional gamification, and when you say gamification to me, it means you know, leader boards, social dynamics, and people claim we do all that, but we actually do none of it. I think the reason Robinhood was successful in the early days is that we offered something that nobody else offered, which was commission
free trading. And I think the reality is if I look at the design of the Robinhood app and old screenshots of it, I don't think it was particularly easy to use. I mean, it was easier to use than the competition, maybe because we weren't really competing against traditional technology companies that are known for user interface. But I think the reality was that the value proposition was so strong that people could actually put up with a lot of cruft in the user interface to just get the
core value, which was commission free trading and investing. I think over time what happens is as sort of like the unique thing we had commission free trading became universal. There was like competitive dynamic where the services that reduce friction, there's just a natural force to make the services less
friction full and more easy to use. And I think you kind of see that across industries, and that just comes from paying close attention to the users, looking at their pain points, and having a system where you just like systematically reduce those pain points. Like we literally spend time sitting with users watching them use the product, see the points where they get confused and try to try to fix it. And I think you'll see that in any technology company. But you know, most companies have become
technology companies at this point. Any company that's like doing a reasonable job, I think will come to the level where they're actually doing user feedback and iterations on design based on it. If you don't do that nowadays, you'll essentially not survive in the in the marketplace.
Just going back though to that twenty twenty one or twenty twenty cohort, you said something interesting, which is that some people trade and they have like a more passive long term book. They're you know, not people do both.
The word maturation I don't know, a little condescending, but has there been a maturation of that base in some sense where people who initially got into trading because it looked fun or was exciting, or they were bored, et cetera, those customers over time of like Oh, and also long term buy and hold in indexing is also something that's probably a good idea, Like do you see growth among that cohort in terms of what they're interested in?
Generally every person ends up having a need to invest now like.
An actually invest not just trade when you say.
Yeah, yeah, so not everyone actually sticks with trading becomes an active trader. A lot of people trade more actively at first and then eventually end up doing like more passive investing. Interesting mostly because they don't if you talk to these people, they don't want to put in the time to like spend that they have other things to do, so they prefer all their investments to be hands off. Some people end up trading a lot. And I do believe that it's a skill that you could actually get
better at and improve at. And you know, not everyone actually wants to put in the time and effort to do that, And so we serve those people with other tools, you know, retirement accounts. We have a new product that we rolled out called Robinhood Strategies that you just deposit money and it'll invest for you and of course give you the rational.
Is that like copy trading or is this different?
It's it's a digital advisory product. Okay, so it's a yeah, we have a registerant investment advisor and it will this.
Is it the closer betterment or something like that sort of business like the sort of robo.
Yeah, it's similar to a robo except there's a couple of interesting elements. One is your fee is capped. It's capped at two hundred and fifty dollars per year if you have one hundred thousand in your account. So most robo products, even though they're lower cost than traditional advisors, get more expensive for you the more money you put in there. And we thought that was like fundamentally broken. As you put more money, the service should get more
compelling for you. You should feel like you're getting more value because the overall relationship to Robinhood is much more valuable. So we sort of like inverted the model so that it actually on a percentage basis, gets cheaper the more money you have. And then also we have these personalized insights.
Every time something happens to your portfolio, you can read about it and why we made that change, and you can also listen to us explain it via audio, which has been really really popular for our customers.
Well, this leads into something that I want to ask you actually, which is you're doing all these different things now, and you clearly have ambitions to be a sort of like one stop shop for everyone's financial needs. How do you actually decide which new products or which new capabilities to expand into. Is it a case of like, Okay, well people are on the platform, they're trading, so maybe they would be interested in some sort of robo advisory service.
Or is it you look at the competitive landscape and you think like, well, this company has you know, they're using cobol or something like that, and they can't do what we can do with a new tech stack, and so there's an opportunity there. How do you assess all those different opportunities and then ultimately decide what you want to do.
Yeah, basically our business strategy falls into three buckets, and you can kind of align that with time horizon arcs. So we have sort of like a near term arc which we're in the climax of right now, which is to be the number one platform for active traders. If you're an active trader, you know, if you're one of these people that has the six terminals in front of you and you've got your battle station, we want to make it clear that you're at a disadvantage using any
other platform. And these folks are at the frontier of technology and innovation. So twenty four Robinhood, twenty four hour Market is an example there. It's not just about better tools and interfaces, although that's a part of it. It's also having things that are not available elsewhere. Twenty four hour market being probably the best example there, and that's
become very, very popular. And you're literally at a disadvantage if you're not using Robinhood because if you need to manage your risk on a Sunday night, our platform offers access to equity markets and you know those aren't easily found elsewhere. So that's the near term mark. Then we have sort of a medium five year arc, which is being number one in wallet share for the next generation and that's millennials and Gen Z for now. But we don't want to also get stuck in the millennial and
Gen Z bucket. We always want to be relevant to the needs of the next generation as they evolve.
Of course, Wait, what generation are you saying you are of Gen XENX.
Well, you're in the other direction, Yeah, you're the other gen Alpha.
I thought you were saying that you're really young.
Oh no, no, no, I want to make sure that there's still financial services that cater to old people.
Gen X. I would say it's a simplification. I mean there's Gen X and baby boomers that love Robinhood. I think the common ground is actually less your age and more how digitally savvy you are. Like, if you're comfortable doing digital banking and financial services on your phone, you know, you could be eighty years old and really enjoy Robinhood.
But you know, some people, particularly as they're older, prefer to go in person and talk to a human and I think we're a laggard in developed those types of services. So the second arc medium term mark of being the place where you put all of your money, we basically look at a few things there. One is where are people withdrawing to if you take your money out of Robinhood to do something, can we just better serve that
within our ecosystem. So you know, for example, a lot of people took money off of Robinhood to pay their bills. So we saw that and we thought that was a great opportunity to just allow them to pay their bills via us. So we launched the Robinhood Gold Card, which you know, in my opinion I'm biased, is the best
credit card on the market by a wide margin. Three percent cash back on all categories, which you have to be a high net worth individual to get coupled with a very nice user interface that lets you create virtual cards on demand. You can add your whole family help them build their credit. So that's just an example of how we think about it. But for each of these products individual, I don't think it's enough to come up
with the category. I think we have to have a great idea for how we can make the economics better for users and also how to make the user experience better. And when we have that combination, I think that's the ingredient to a successful Robinhood product. I should mention the third arc because that's the long term away and it's pretty relevant here given the event we just had in the South of France. It's called building the number one global financial ecosystem and what that.
Means all just that.
Yes, so that's a long term mark, so it's going to take a while, like ten years, But basically it involves expanding Robinhood across two linearly independent vectors. One is from US only to fully global and the other is from retail only to business and institutional, and that's where we get into really interesting platform aspects like tokenization.
So let me talk to me about equity token here's my question, in what year tell me about equity tokenization. You know, I'm thinking about like a stable coin is a tokenized dollar, right, so obviously a you could do the same thing where you have like a stock, tesla whatever in crypto form, et cetera, and it trades on a chain twenty four to seven. In what year will I be able to trade any stock twenty four to seven on chain?
Well, if you are a European customer, definitely twenty twenty five. So what we announce in our event to catch a token in the South of France is stock tokens by Robinhood, which are essentially tokenized US equities and ETFs. We also did a giveaway of tokenized shares of SpaceX, which is very exciting, and that the technology for both is ready
right now. It's working for tokenized equities, you can trade them twenty four to five right now, but twenty four to seven is coming over the next few months and will also unlock full on chain capabilities, so swapping, collateralized lending and borrowing anything you can do in DeFi. So the barrier to adoption in the US kind of mirrors what we saw on stable coin. The technology is there, it's available in Europe, it'll be available in a bunch
of jurisdictions. It's all just regulatory clarity, which we're hopeful will come later this year. But it's not a technological barrier by any means.
Why is tokenization a part of it if we're not really solving a technological problem but a regulatory problem.
Well, tokenization solves a lot of problems, but the necessary piece to make it available to the US is essentially a regulatory issue. We just need rules of cryptoregulation and for the private stock side, which is also an interesting element because there you start to really see the benefits of tokenization.
What does tokenization do? What does it allow you to do?
Yeah? So tokenization takes an asset and puts it on chain and essentially makes it tradable twenty four to seven, just like a stock or a crypto asset would be. So you can buy or sell it on a crypto exchange.
But why can't I can buy or sell a stock? Right?
Like?
What are we doing here?
What is the different? What does the tokenization accomplished that you can't just do on a database that you can buy stock com?
Yeah? So good? Question, I think the answer is slightly different if we're talking about a customer in the US versus internationally, and I'll explain why. So in the US, we already have a pretty robust financial system. Robinhood exists, right and you can onboard on Robinhood and buy stocks. You can buy them twenty four or five, which is pretty good. So there the delta between the tokenized experience and what you have currently would be expanding to twenty
four to seven. And also, eventually when we plug into DeFi, making all of the DeFi aspects which are right now a little bit more niche but incredibly powerful available. So collateralize, lending and borrowing self custody. Self custody is interesting. So right now, your stock in your Robinhood or other brokerage account is kind of locked into a broker. So let's say that broker has issues, you got tech technical outage,
You're kind of stuck. But if the stock were to be tokenized, not only would it become seamless to use another broker you just kind of attached to your wallet, but the reliability would be much higher.
I also want to have to worry about losing my seed phrase when I have stock in a traditional brokerage. Is that something that people are going to have to think about if they're trading tokenized equity.
It's less concerning with traditional assets because there's always going to be a process to connect your token with the real asset. So you know, it's a big problem with bitcoin, for example, because there's no like physical representation. But if you have a tokenized dollar or an asset, you will be able to there will be a process where you can claim the actual real thing.
Sorry, just to press on this further, I'm trying to understand. Okay, So a tokenized equity and it's gonna I think, what's the chain. You're using arbitrum like arbitrum at first, but not for long. We're actually rolling out our own blockchain. Oh, you're gonna have a base competitor.
Yeah, in a way. I mean it's just a layer on top of arbitrum. Then, uh, it's it's gonna be on top of etherium. It's a layer two.
Okay, so you're building your you're building your own ethereum layer two. Huh. Setting asaid Europe or the United States. Random person who has as some USDC in Indonesia, will they be able to interact with this and then have Tesla exposure eventually.
Yes, that's the plan, and so like.
Right now, if I want to own Tesla shares through robin hood, like I tell you my name and I presumably give you some identifying information, etc. But in the future, in theory, anyone will be able to get exposure to these assets without actually having to reveal anything about themselves because they're just interacting pseudanonymously on chain.
In large part, yes, there's some caveats where, depending on the jurisdiction, we might have to like KYC, some elements of the experience. For example, minting and burning the actual physical stocks and turning them back and forth into tokens
will likely require KYC. But yeah, in the same way that you can transfer a token I stable coin on chain, you'll be able to transfer token ise stocks identically and kind of in the same for the same reasons that stable coins have become more popular and have really gained mass adoption outside of the US. First, just because outside of the US it's much harder to get a hold
of US dollars. Token ice stocks I think will gain a ton of adoption outside of the US before the benefits and the technology accruing to the US and kind of disrupting the structure here.
And so just to be clear, if I have a token ied stock, I can stake that right and use it to do other things.
You will be able to connect it to all of the DeFi capabilities. Now exactly what those are. I think we're going to have a developer ecosystem and they're going to have to build a whole bunch of things. But yeah, you can put it in pools and to collateralize lending pools. Staking is interesting because technically staking is dedicating tokens and
resource is to support the network itself. And so when you say staking a stock, a lot of people actually mean lending it, which which I think will be able to be done eventually.
But could you stake it.
To support the network sort of old school as well.
I think the way that that would actually work is you'd have to convert that into the network gas token and and you would stake it that way. But I think it's a little bit early for us to get into yet.
So you mentioned that you're only doing this on arbitrump for a short amount of time, and then you're transitioning to your own tech. Why, I guess is my question, like, why start there and then do your your own layer versus just starting out with your own thing.
I think that the ambition is to actually make this the best chain for real world assets. So we're starting with stocks. We're also doing private stocks as well, but we want to tokenize everything that people would want to make tradable, so you can imagine real estate in the future, you can imagine carbon credits, really anything.
But if you're going to use ethereum, then why not start out with Ethereum rather than arbitrum.
Ethereum is the base layer one, and the problem with transacting directly on ethereum is that the fees can be quite high. So that that's why Arbitrum, which is a layer on top of Ethereum, they've been able to essentially consolidate lots and lots of transactions and sync up to the base layer one chain at an infrequent cadence, and that way you can kind of like split up what would be a large transaction fee into lots and lots of small transactions and get the costs down from you know,
high coction, high congestion. You know, Ethereum could be multiples, multiple doll per transaction down to like individual sense, you know, a handful of sense.
And I know we've been having this conversation for years now, but what happens to the gas fees? What if this really takes off and people start using the service en mass?
Yeah, I mean, the gas fees are very scalable. Part part of the benefits of being a layer on top of the chain is to some degree we'll be running sequencers and we'll be able to handle the gas fees. And I think that the goal would be for this to be essentially transaction costs or very very low costs.
You obviously as part of the core company competitive advantages, building tech right and building And one of the things that you did several years ago is you built your own clearing stack instead of you know, using some third party company, I forget what it was, you know, could you in your vision for Robinhood, could you ever see whitelisting some of your own tech? You know, I think about like Amazon and eventually it built its own computers and then it started selling them, and then it started
selling its warehouse capacity. As you build up these capacities, could you see selling it to other FinTechs or access to these platforms.
Yeah, and I think tokenized stock tokens is a great example of that. So I think that that could become a standard. If you're another fintech Yeah, and you know you're you may not be offering stocks to your customers. Maybe you have a big international presence and you want to add stocks. You would just be able to integrate with our chain and then those stocks would be available
to your customers. We also have a service called robinhood Connect, which essentially took our trading services at were that we've optimized so finally for our own first party app and made them available to third party developers. So, if you're a non custodial wallet provider like a Moonshot or Uni Swap or meta mask, you have this problem of how do you streamline people getting their dollars into crypto and
back out to dollars if they want to. So robinhood Connect offers, you know, one of the lowest rates to do that, just because we've optimized that so much that you know, handing that out and giving that service to third parties is now easy for us to do. So we're going to continue to iterate on that the chain will be full fledged developer platform, made available to third parties, and we always will continue to look for opportunities in
the future to have our tech. I wouldn't call it white labeled, but at least made available to institutions and other customers.
You know what's really interesting to me. I was thinking about, like several years ago, when crypto started taking off, and I used to make fun of these people when cryptos started, when crypto started taking off, and you'd get these conferences and people would go on panels and they say, well, we're really we're really interested in blockchain.
Tech, not baitcoin, but block We're.
Really interested in blockchain technology, not bitcoin. And I never really knew what it meant, and it didn't seem to go anywhere, and it just seemed like a way like, Okay, if I like worked for like a big whatever, big legacy financial institution, I want to sound smart, I want to get invited to panels. I say like, oh, we're really excited about the blockchain here totally yeah, But actually it kind of sounds like maybe they're being vindicated a little.
Well, you've noticed that I'm not using the word blockchain or web three.
But you're using it, we're talking about the you're talking about the the idea of chains. Yeah, and like I might, like I'm kind of sitting here at twenty twenty five, and it's like, maybe I shouldn't have made fun of those people as much as I did, because it does seem like chains per se, I think, as opposed to coins, are kind of allowed of the action.
I think you should make fun of those people a little bit because people have been talking a lot about this stuff for many, many years. There's been a lot of talk, including for me and you know, more.
Recent we're going to put yeah, let us on the block it.
We're gonna put you know, fancy I still fancy purses on the blockchain, which maybe you'll.
Do it, it'll happen, but yeah, there's been a lot of talk and not much action. So yeah, me personally, I try very hard not to brand stuff and say it's the next big thing. I just want to make products available that people use. And I think the best buzzwords come out organically because consumers are actually calling things and the things arise naturally, right, And I think that there's a running.
Gag that make fun of them less though I really don't.
Yeah, mass adoption is a year away. It's always kind of been a year away.
Situational is always a year away too, but it happened.
But yeah, I think that we're finally at the precipice of cryptotechnology not being just bitcoin and meme coins and actually being applied to things that are useful in the real world.
I will believe it when I see it. But if you have tokenized stocks, what regulatory regime does that actually fall under in the US at least? Like is that a security or is that a derivative or is that something else? And how are you navigating that aspect of it?
Well, so they're they're not permissible in the US yet, But our belief is that in the ideal world they would not be treated as a derivative, Okay, they would instead be treated as a security kind of pari pasue traditional stocks. So basically, all of the protections, all of the structure that the SEC can kind of promulgate to individual stocks should pass through to stock tokens as well. And our belief is actually that this doesn't require new legislation.
The SEC can basically make the rules. They can do a rule making, they can even do relief in advance of rule making like they did for reggaets. If you guys are familiar a few decades ago. So we've been working with them, and I think actually the folks at the sec HESTER and the Crypto Task Force, you know, we've been engaging in a lot of roundtables, including tokenization. I think they're pretty keen to make this happen. And I actually think the EU launch and showing that you know,
these tokens are useful. It works well, Customers love it. It's a huge efficiency improvement and infrastructure improvement behind the scenes that makes all kinds of things that they care about easier. My hope is that that'll help kind of spur innovation and spur activity and acceptance worldwide, not just in Europe.
The changing administration must be must have been huge for you.
It was definitely a positive because you know, probably over the much of the past, much of the period of twenty twenty to twenty twenty four, we had to play defense.
Our business was under assault from multiple angles, and I think at first when the administration changed, having that not be a huge factor was a huge relief, just not having regulation by enforcement and not having to like spend a significant amount of mind share and resources on defending our business from this onslaught, and then that shifted into Okay, well, we've got to exercise a muscle that we haven't really had to exercise before, which is there's an openness to
create new rules and to like actually move forward and encourage innovation. What does that look like? What does it look like to actually work with an administration that wants to get on the front foot and make the US the leader. And I think that's been very welcome. I think you saw with the stable coin bill, you'll see with market structure that I think we'll be able to execute on this.
What's it been like working with them? Just give us some color of like the actual process in this administration versus the last one.
They've been moving fast, which is pretty amazing. I mean, bo Hines and David Sachs care a lot about this, they care a lot about us being number one in crypto as well as AI. They've been engaging industry, and they're also like allergic to bureaucracy. I think in the previous administration, frankly, it was hard to get a meeting right. First of all, I don't know for how long people weren't going into offices. But like it was remote meetings, it's hard to get the stuff done.
You made a substantive difference into.
That made a substantive difference because I think it's really hard to solve complex problems with multiple stakeholders remotely. So even just something as simp is like having a round table, wasn't really done, couldn't couldn't really be done in the previous administration because they were all it was all just virtual chats. Everyone was working remotely.
I have another crypto related question. One of the things I wonder about is who makes money in crypto? And by that I mean like, at one point there was a lot of excitement about the specific l ones right so Ethereum, ver Solana, et cetera. But it's not clear to me that they're gonna like collect tons of fees. Especially you know, it's like you're using a layer two I don't know how much value, or you're built, and then you're gonna build a layer two I don't know
how much value. Actually, then crews to uh say, Ethereum Circle recently came public doing incredibly well that business is it seems like it's insanely good. On the other hand, they paid a lot of their money to Coinbase for distribution, et cetera. So I don't really know if they're gonna make a ton of money in the long time. Maybe
it'll be the distribution. Are you gonna by the way, you're gonna get in on that, like we'll circle, Like at some point will you be collecting money from the stable coin issuers to the customers who hold that coin.
On your platform. Well, we we announced last year that we joined the Dollar Global Network, which is a consortium with Paxos, crack In a bunch of other companies to create a new stable coin that's going to be global in nature and will pay very competitive interests to holders. So the goal would actually be to take much of those economics and pay them in the form of interest
to customers. Because if you think about it, if you're if you're holding you know us DC or most are tether, most other stable coins, h you're not getting interest, which is.
FI users are getting interest indirectly though, right if they hold us DC on Coinbase and Circle remis money to Coinbase, and then Coinbase remix money to the user.
They are they are getting rewards uh, which is which is true, But I think it's a little bit different than interest, and I think it's also not universal. I mean, you have to be holding it custodially. You can't be just like holding it on chain, and you're certainly not getting it if you're using tether or one of these others.
So yeah, I think I think they can get rewards and incentives, but I think over time they'll have to They'll have to get interest as well, because if you're not getting interest, you don't really have an incentive to hold US dollars. In the form of stable coin, the incentive would just be converted immediately and put it in a bank, which I think most crypto people would tell you it It kind of defeats the whole point of using crypto. I think internationally it's okay because those people
just want convenience. Yeah, so you can you can get rid of I think it's a good enough value proposition for now, but I think over time, as the interest is unlocked, the best state coins will actually the ones that ultimately gain market share are going to pay a very competitive interest rate. So that's going to become an access for competition, and the end user will benefit. So actually, to cut to the chase, I'm not sure that's a
long term, sustainable, large revenue stream. I think it'll get competed away.
Maybe no one will make money in cryptoni benefit of the consumer.
Well, okay, this is exactly the question I wanted to ask. Okay, so who makes money here? When I think about capital markets, Like if I'm an old school investor or an old school economist thinking about capital markets, I think like, okay, well, an investor comes along and they give a company money and they get equity in return, and the company uses that money to go out and expand their business, and eventually they pay back the investor. And then I look
at investing nowadays. I'm sure you've heard this criticism before, but so much of it seems extremely synthetic. You know, tokens built on top of tokens on top of tokens. I guess my question is, like, to you, what is the actual purpose of capital markets and this type of training.
I do think that there's a valuable purpose of capital formation. I think it's gotten a little bit lost, or i'd say the retail investor in the US has gotten disconnected from that purpose because not too many companies are going public nowadays. I think past few months have been an exception locally, but if you look out broadly, you know, back in the eighties or late seventies, you used to be able to get into a public company at IPO at a pretty low evaluation and kind of get a
thousand X or ten thousand X return. I mean, if you'd invested in Microsoft or Apple at IPO, you had a lot of upside left. So companies used to go public earlier. Nowadays, you know, you've got SpaceX Open AI companies that are worth hundreds of billions of dollars still staying private, and those gains are accruing to a smaller
and smaller set of wealthy insiders. And I think that's another potential for the technology because you know, as I mentioned, we release SpaceX tokens to consumers as part of this,
as part of our to catch a token event. And what that will do over time is you'll have twenty four to seven liquid markets in private stocks as well, and I think that's going to be very exciting in the US if those are permissible, which I think requires the crypto stuff, but also a relaxation of the accreditation standards. I think things start to get really interesting because then you unlock capital formation at a greater scale and also
participation for retail in some of these great opportunities. Like if you're a retail and you want to gain exposure to the AI boom, your options the US are extremely limited, And I actually think that's a huge problem because the AI boom is very, very consequential to everyday people.
Man, I'm also looking at the circle IPO. This thing is insane. It goes up like twenty percent a day. I have a question about IPOs. I'd love to get your take on this. Every time there's an IPO that goes up, you have like the sort of like Ninia's like, actually this was bad and they left all.
This money money on the table.
There have been alternative routes to ipoing for decades actually late nineties. Google famously did a Dutch auction when it became public, et cetera. Yet the IPO as a thing persists. Do you have a theory for why, Like why is it that like the IPO model where the big bank, the big legacy banks, they get their allocation and their best clients get this big bump et cetera, and the company leaves money on the table. Why does it persist for so long? In your view? What does it say about markets?
Is this a roundabout way of asking why robinhood IPO?
No? I mean sure maybe, but like, what is it about the traditional IPO that's so lindy Well, I think it's just the enshrined in regulatory No, it's not. The Google did a Dutch auction. There are clearly other ways to go. SPACs existed, they're coming back already, and yet good companies continue to basically go by the IPO road.
Yeah, that's a good question. I would say those are all kind of variants of the IPO that people have experimented with. You have direct listings as well.
Yeah.
Downside of course with the direct listing is you can't raise primary capital, which I think is useful to a lot of companies like they do look at it as a financing event. So I think there will be some iteration and some experimentation within the IPO sandbox like we've seen. But I think you look at tokenization of private companies if we kind of pull on that thread, that that
presents an interesting alternative to to companies as well. Both for raising primary capital and for tapping into secondary liquidity for shareholders. I think it's not yet clear what the impact of that will be long term to capital markets, but it's definitely coming.
So you mentioned the accredited investor limitations regulations in the US, and I've never I've never really decided how i feel about them, because, you know, on the one hand, they're supposed to protect uninformed retail investors. I guess, on the other hand, they do seem to lock people out of
a lot of opportunities in the market. And one thing you hear from companies such as robin Hood is this idea of democratizing finance, Like that is the buzzword and the catchword, and we're going to bring all these offers created that.
By the way, Oh did you that was our mission? Democratized finance for all.
They talked about that, yeah, Trader in ninety nine.
Also peer to peer lending, like they were all over that. Okay, But on that note.
Well they got it from us, okay.
But on this note, like, is there a limit to how far you can democratize finance or do you believe there should be like any guardrails in terms of investor access.
I think any is a big term. I mean, obviously I can think of some examples of things that maybe you shouldn't be democratized or at least democratized. First, Like, I don't know if retail needs to be trading collateralized debt obligations or some of these heavily institutional products. But I think with private companies it's a little bit of
an easier discussion. I think that it's hard to imagine an argument for why retail should not have access to that, like the an argument that on its face is an illogical and you have access to so many things. You can just spend your money on Amazon and buy all sorts of trinkets that immediately lose value and depreciate. You can buy mean coins, right, So the idea that those classes of ways to spend your money are okay, But buying open ai or SpaceX stock, I think, on its
face it's illogical. Either we have to ban a whole bunch of other things that people do to blow their money.
Be My issue is that I think in a world everything is available, you induce a lot of people to essentially find ways to fraud, to create fraud. Whereas a trinket is a trinket. Anyway, I think we have to let you go. We could talk for a real long time. Well everything beyond chain in the future.
I don't know about everything, okay, but I think anything that people want to trade, buy or sell and get liquidity on will likely find its way on chain.
Attend to thank you so much for coming on odlash. That was a blast.
Thank you guys, Thank you.
Tracy. I really can't believe the degree to which like a blockchain. I mean, he didn't say blockchain, but is every all these companies have their own chain, so like coinbase has its own chain called base, robin Hood with its own chain, Like I thought that was so ridiculous, the idea of like seven or eight years ago. And it's a little different, like they're not putting tomatoes on chain, but like the change themselves that were the coin is
not that important. It sort of took off in a way that I wouldn't have guessed.
Here's my question. If you're a person right now who is not trading crypto, Yeah, is there anything in your day to day life that is, you know, trading or existing or being tracked on chain?
I don't really think so. Yeah, I don't think so, so, but it does.
But we're so we're still we're still in the wait and see mode. People are still talking about it. And yeah, I guess, like I'm open to the idea that chain technology is going to change things and make things different, But I guess, like, why hasn't it happened already? And then b it sounds still like the barrier isn't necessarily technology, Like we have things that would allow you to do this, but it's still regulatory.
I mean, it sounds like the reason it didn't happen is because all the Biden administration people were working from home and they couldn't they didn't have around tape. No, it does sound like probably that is part of it, the sort of changing regulatory environment and the deep suspicion towards crypto for better or worse, uh on the part of the Democratic Party in the US, Like obviously seems
pretty real. And I do think it seems like that between the Genius Act, definitely change in Congress, and obviously the changing of the guard at the Sea See, there is a real movement. And to my mind, it's not really like and again I always sort of go back and think about our episodes with Austin Campbell. To my mind, it's not like, okay, like there is some benefit to
me right now in the existence of chains. But the idea that like legacy software for reasons that we all know is never get to get its act together to have something like twenty four to seven trading for better or worse. I don't even know if twenty four to seven is trading, but some people want to do it, because some people want to trade at three pm in the afternoon, And it sounds like or of what I suspect,
and I think it's probably like real or imminent. Is that through change that will that that'll be something that becomes fairly common.
I guess here's where I'm coming from. It seems to me that a lot of this is incremental rather than revolutionary, and when people were first talking about it, it was very much in those revolutionary terms, and now it just seems like, you know, like an efficiency improvement.
I actually I totally agree with that. I mean, one thing this is definitely not is some sort of like cipherpunk vision where people are trading everything without the government being able to look at That is definitely true. But you know, like the efficiency improvement is it's nothing like,
it's not it's not only not nothing. So no, I think it's actually kind of a surprise to me because the the way people talked about, you know, the thing with blockchains is that they're decentralized and costly, and you brought up the point of etherorem gaess fees. But if everyone can have these sort of basically low fee layer twos because they're more they're in large part centrally run, you sort of solve some of the compute issues because you're not you don't have to like coordinate all these
different nodes around the world. It's the robin Hood chain, it's the coinbase chain, it's whatever. Maybe it is more efficient than legacy infrastructure that has been updated and cobbled together for like literally decades, and we'll be here decades from now.
It's certainly true that you don't hear the gas fee complaints the way you used to write like that that's been solved. All right, Well shall we leave it there?
Yeah, let's leave it there.
This has been another episode of the Authots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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