Inside the Controversy Brewing Over Robinhood’s Tokenized Stocks

OpenAI slammed an unauthorized try to tokenize its fairness on Wednesday, following a reveal by buying and selling platform Robinhood that it had listed digital inventory tokens labeled as “OpenAI” and “SpaceX” earlier within the week.

ChatGPT creator OpenAI pushed again on tokenization on Wednesday, following the reveal by buying and selling platform Robinhood of OpenAI and SpaceX inventory tokens on Monday.

In a publish on X, OpenAI mentioned the tokens don’t symbolize fairness within the firm and that it had no involvement of their launch.

“We didn’t accomplice with Robinhood, weren’t concerned on this, and don’t endorse it,” OpenAI wrote. “Any switch of OpenAI fairness requires our approval—we didn’t approve any switch.”

In a response to OpenAI’s publish, Elon Musk—CEO of SpaceX and Tesla, and a co-founder of OpenAI—responded bluntly: “Your ‘fairness’ is pretend.”  Musk parted methods with OpenAI in 2018 after disagreements over the corporate’s path and its transition from a nonprofit to a for-profit capped entity.

In accordance with Robinhood, the OpenAI tokenized shares will launch on the Ethereum layer-2 scaling community, Arbitrum.

In a press release, Robinhood mentioned the tokens give traders “oblique publicity to personal markets.”

“To cap off our current crypto occasion, we introduced a restricted inventory token giveaway on OpenAI and SpaceX to eligible European clients,” a Robinhood spokesperson mentioned in a press release. “These tokens give retail traders oblique publicity to personal markets, opening up entry, and are enabled by Robinhood’s possession stake in a particular objective car.”

As Robinhood defined, inventory tokens don’t provide lots of the identical advantages as conventional shares, equivalent to proudly owning the underlying inventory or voting rights.

“When shopping for inventory tokens, you aren’t shopping for the precise shares,” Robinhood wrote. “You might be shopping for tokenized contracts that comply with their value, recorded on a blockchain.”

Some traders pushed again on OpenAI’s response, arguing that the tokens nonetheless replicate respectable publicity to the corporate.

“OpenAI is placing out this assertion to be protected as a result of they should,” investor Amit Kukreja wrote on X. “All Robinhood did was set up a token that tracks the valuation of OpenAI on non-public markets. You aren’t actually shopping for shares in these firms, however shares are simply certificates; the digital illustration of these property is all that issues.”

Whereas Robinhood mentioned the value of the inventory tokens shall be displayed in USD, U.S. clients are barred from shopping for them as a result of regulatory restrictions.

“When promoting inventory tokens, you may all the time promote them for his or her worth in euros,” Robinhood mentioned. “You can not ship inventory tokens to different wallets or platforms right now.”

Tokenization converts possession of real-world property—like shares, actual property, or paintings—into digital tokens on a blockchain, making them simpler to commerce or divide. The issue is that OpenAI isn’t a publicly traded firm.

Authorized quagmire

Kurt Watkins, founding father of U.S.-based agency Watkins Authorized, informed Decrypt the providing would seemingly be “commercially unviable” within the U.S. as a result of its lack of transparency and authorized ambiguity.

“Robinhood’s OpenAI tokenized fairness product would face extreme SEC scrutiny within the U.S. as a result of its essentially opaque SPV construction that obscures crucial investor protections,” Watkins mentioned. “Crucially, there isn’t any assure the tokens will truly monitor OpenAI’s value since they lack significant underlying rights and will face liquidity points.”

He continued: “OpenAI’s specific disavowal that these tokens ‘should not OpenAI fairness’ and that no switch was accepted exposes the illusory nature of the funding, creating precisely the kind of deceptive monetary product that securities legal guidelines are designed to forestall.”

“Even with Robinhood’s disclaimers, this opacity mixed with clear Howey Take a look at securities classification would set off registration necessities demanding way more complete disclosure than presently supplied, seemingly making the product commercially unviable within the U.S. market,” Watkins added.



Criticism has additionally been levied towards the design of Robinhood’s tokenized contracts with Ren, a accomplice on Electrical Capital’s funding staff, labeling them a “walled backyard.”

“Simply decompiled Robinhood’s tokenized inventory contracts. It is a walled backyard, each switch checks a registry of accepted wallets (KYC/AML),” Ren tweeted Tuesday.

“It is unlikely these tokens can work together with DeFi,” he added. “It is very attainable CeFi with distribution simply outcompetes present DeFi protocols.”

In different phrases, centralized finance—like Robinhood—could achieve the higher hand, not due to innovation however as a result of it controls consumer onboarding and distribution.

Decrypt reached out to Electrical Capital for additional clarification on these factors. Maria Shen, a Basic Accomplice on the agency, created a gaggle chat between Ren and Decrypt, however Ren shortly exited with out remark. Shen later eliminated the group, describing the alternate as a miscommunication and that Ren had declined to remark additional.

OpenAI and Robinhood declined Decrypt’s requests for remark.

Edited by Sebastian Sinclair, Vince Dioquino contributed to this report.