The Tokenization “Scam” Explained | Robinhood

Vlad, the Impaler of stocks, went on

Bloomberg to explain why their

tokenization of private companies like

SpaceX and OpenAI is basically not a

scam. This is because he's people have

been alleging that uh what companies

like Republic or Robin Hood are doing is

they're not actually buying stakes in

OpenAI or SpaceX and then tokenizing

that sort of bucket by slicing it up and

then selling you slices. They're

basically saying there is no bucket of

the underlying stock and they're slicing

up some special purpose vehicle contract

somewhere which is like some derivative

contract which basically derives its

value from the underlying move of OpenAI

or SpaceX but you don't actually get the

underlying share and as a result you get

to through Robin Hood or these other

companies mimic having exposure to

SpaceX or OpenAI without having that

exposure. This introduces a whole lot of

really complicated problems that are are

really beyond getting into in this

video, but we are going to see Vlad's

response. And I'll give you the quick

quick primer on why not having exposure

to the underlying creates risk.

Somebody

takes the other end of the contract.

basically the other person making the

bet on the other side that uh hey you

know if the contract value goes up

because the value of open AAI goes up

let's say somebody else has to pay for

that for these tokens to have value now

that could be a hedge fund but what if

that hedge fund goes bankrupt

then a company like Robin Hood has to

step in and pay for it are they going to

is Robin Hood guaranteeing these tokens

I doubt it somebody's guaranteeing these

tokens and some fine print somewhere is

probably disclaiming away risk. But I

don't know. I haven't read their, you

know, their special purpose vehicle

paperwork or whatever. But let's just

listen to, you know, Robin Hood's CEO

explain it directly. But this is why

people are nervous. Now, do I think that

they're trying to scam people? No. Uh,

do I think that, you know, it's highly

likely that whoever the counterparty is

on the these, you know, special purpose

vehicles is going to go bankrupt? No,

but I also don't know who they are and

we haven't done this before. Unless you

compare to, you know, derivative

instruments of prior recessions where

everything hits the fan at the worst

time possible and then you're like, "Oh,

I need liquidity on my OpenAI or SpaceX

stock and and you know, via these tokens

and all of a sudden there's none there."

Usually when you need the money the most

is when there's the least liquidity

available. So keep that in mind. But

let's listen to the Vlat and and see

what his opinion is.

Oh gosh, Kevin, you know, you got to

have the audio set to where your people

can hear it.

France are several products for the EU

stock tokens which give exposure to

public uh listed equities. We have over

200 and those are available 245.

Finally, giving our European customers

exposure to US stocks. And then we did a

giveaway of what we call private stock

tokens of OpenAI and SpaceX.

And those aren't tradable yet, but it's

sort of uh

testing the waters, if you will, for

what we believe is a huge opportunity to

resolve one of the biggest inequities in

capital markets.

Inequities. Okay, that's that's too big

of a word for me.

One thing to remember is that Robin Hood

makes money by introducing products.

They're a broker dealer, which is

totally normal, but it's under it's very

important that you remember how brokers

make money because I feel like it's

always going to make you aware of, okay,

well, what's what's in it for them,

right?

If I sell you, let's let's just say I

became a broker dealer tomorrow and I

said, "Hey, boys and girls, come put

your money in the Meet Kevin brokerage."

All five of you who would do that, put

your money into the Meet Kevin brokerage

app. Thank you to the five of you. And

the other million of you who don't, I

still love you. Now, your money is on

the platform.

And if I tell you, hey, buy the Vanguard

S&P 500 index fund, which you know, pay,

you know, has a fee of whatever 0.03 or

004 or whatever it is, four bips. Uh,

there's very, very little in it for the

broker dealer. Not that we get any slice

of that. We don't. But because Vanguard

is so heavily traded, the spreads on

that ETF are very, very low. So, in

other words, you know, let's just say

the S&P 500, just to make math simple,

is $100. You know, it's probably trading

at a bid ask of 99.98

and 100.02. So, there's like a 4 cent

spread in there. There's very little

money for a broker dealer to pick up by

getting money back from market makers,

like rebates back. That's all very

complicated, but to simplify it, the

more traded a product is, the less money

there is in it for the broker dealer.

So, I then become incentivized as the

broker dealer to have a bunch of unique

products on my platform. So, like if I

say, "Hey, I got this new product that

lets you own 10% of a million people's

iPhones."

Who really wants that? Okay, but let's

just say. and and it's it's a bucket. So

So if one person drops their iPhone and

breaks it, don't worry. You still have

999,999

other iPhones that support the value of

this bucket of iPhones that I'm selling

you. Well, how many bucket of iPhone,

you know, buyers or stock buyers are

there out there? Probably very few. This

means the spread could be very wide. So,

if I want to sell $100, you know, $100

share of of this bucket of iPhones, it

might have a bid ask spread of $95 to

105, which is massive. You know, that's

that's uh what is that 100x4 cents to

100? Yeah, that's that's about 100x 100

to 125x the spread. In other words, I

could make 100 to 125 times the money

selling you a a flaming bucket. Doesn't

necessarily have to be flaming. It could

be a beautiful bucket. I could sell you

this beautiful bucket. I can make 100 to

125 times as much money selling you that

bucket as I could the S&P 500. Right?

That's just important to remember that.

So, the more products you can make, the

more money you make as a broker dealer.

That's that's just really important to

remember

which is the fact that you have these

massive companies that are staying

private longer. In many cases they're in

frontier industries like AI where we

believe that could change everything but

retail investors can't get exposure. So

we uh we're working to solve this.

So the regulator in

this is basically this this is the sales

pitch, right? Which is fine. Like I

think Vlad does a good job for Robin

Hood and and I like I don't have any

beef with Robin Hood. I think it's a

great platform. Uh yeah, you've had

problems in the past, but we could see

through some of those. But but remember

when he's saying, hey, like AI is a

gamecher. It's a pitch. It's a pitch to

go, oh yeah, you want exposure to, you

know, open AI or whatever

which you're regulated by. I mean, he

looks at the offering and and he calls

you and asks you what?

Yeah, I think I think they have some

questions. you know, they want to make

sure that everything is proper because

it's a it's a new innovative offering.

And we're confident. We think that these

are not only important, but they'll

withstand the highest form of scrutiny.

You know, when when Robin Hood does

anything, particularly if it's new, uh I

think we expect that it's going to be

looked over. So, we we do believe that

it's important and will ultimately

withstand the scrutiny. So we welcome

the discussions with the regulators as

always.

Were were they worried about risk or the

way it was packaged and have you been

able to assuage or is this just that I

mean when are you expecting to launch

some of these tokens?

Yeah, so um at first they were in the

form of a giveaway. So we so we gave

away around uh a million dollars worth

of OpenAI tokens, 500,000 worth of uh

SpaceX and the idea would be to

eventually allow for them to be traded

by customers

and also to greatly expand the realm of

tokens that we offer. We'd like to have

thousands of private companies on the

platform accessible retail.

And actually since our announcement,

I've had a deluge of uh of inquiries,

private companies that actually want to

access retail to have their their shares

tokenized to be a part of this

revolution. So I I think I think that

it's going to be a thing. Of course,

it's always difficult to be first. Um

but I I think

hey remember this

the this whole idea of tokenization like

you know somebody's like oh Dubai is

tokenizing its real estate or whatever.

It's no different than saying

securitize.

Just change the word tokenize with

securitize. What you're really doing is

you're taking a bucket of stuff and

you're slicing it into smaller

increments. Whether that increment is a

token, a share, a deed with a percent of

ownership does not matter. It is an

instrument for representing your

ownership of some slice of that bucket.

This is so important that we're going to

we're very motivated to to find a great

way that satisfies.

So keep keep that in mind. It's no

different than a stock in its premise of

ownership. It is different from a stock

in the fact that tokens can be traded on

blockchain which simplifies the work for

brokers

and it gives you potentially

opportunities to have liquidity at you

know 3 a.m.

everyone

and did you speak to any other

regulators prior to you know developing

these or launching the stock tokens for

for private companies? Well, so they're

live in the European Union, not live in

the UK or the US yet, although

yes, tokens would require registration

with the SEC. It's one of the reasons

why with my house act uh my house act

startup, we're like, "Oh, should we

tokenize what we're doing?" And when we

talk to securities attorneys or the SEC,

they're like, "Well, it's basically a

share. You still have to maintain a dual

ledger if you do that. So like the

traditional manner and the new measure.

So like if you want to do it for

marketing, you can, but you're going to

do twice the work and it still has to be

a registered security. So you don't get

around securities registration because

you're a a token. Like you still have to

deal with it.

We're very keen to to find a way to give

retail exposure to private companies

here. And of course, we have ongoing

discussions with all of our regulators

as part of the the course of running a

regulated business

and and and confident that they'll be

happy with that. I mean, it'd be wildly

exciting, right?

And keep in mind, one of the reasons

he's on this road show right now is

because the European Union is

investigating Robin Hood's tokenization

offer because OpenAI basically said,

"Hey, we have nothing to do with these

tokens. Like, we never sold shares to

Robin Hood." which is fine because Robin

Hood could have bought them on the

private market, but Robin Hood's

basically saying, "Oh, you know, we

would have agreements with other

parties." Okay. Well, do they have the

underlying? We don't know those details,

right? And I think that's just where

regulators are kind of like, "All right,

does this pass the sniff test?" Which

remember, that's their job. It's totally

normal for a regulator to ask any

company that is fundraising,

hey, like you mind if we just take a

look around? Like, that's their job.

They should be doing that. It's kind of

like, don't you want the FAA to every so

often check in on American Airlines? Uh,

yeah. That's what we pay taxes for.

If it were, for example, launched in the

UK, what kind of things are they asking

you to do to make sure that that it's

fine to do?

Yeah. I mean, I'm I'm not sure the full

extent of their questions. They probably

just want to make sure that everything's

clear to customers. Uh, I think