Robinhood CEO Says GameStop Incident Was a Wake-Up Call for Tokenization

5 years after the GameStop buying and selling frenzy rocked Wall Road, Robinhood CEO Vlad Tenev says the episode was a “wake-up name” that uncovered deep flaws in U.S. market plumbing, and satisfied him that tokenization often is the clearest path to stopping one other such failure.

In a submit on X, marking the January 2021 meme-stock disaster, Tenev stated Robinhood and different brokerages have been “compelled to halt shopping for” of risky shares like GameStop resulting from clearinghouse deposit guidelines tied to the then-two-day settlement cycle. 

The end result, he wrote, was “huge deposit necessities, buying and selling restrictions, and thousands and thousands of sad prospects,” as outdated infrastructure collided with unprecedented retail buying and selling quantity.

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The remarks revisit some of the controversial moments in Robinhood’s historical past when, in late 2021, retail merchants from Reddit’s r/WallStreetBets triggered a brief squeeze in GameStop  inventory (GME), sending its value from roughly $17 initially of the 12 months to an intraday excessive of $483.

Robinhood quickly restricted purchases of GME and different meme shares, triggering lawsuits, political backlash from lawmakers, and a high-profile Home Monetary Providers Committee listening to, the place Tenev apologized for the corporate’s dealing with of the disaster.

Tenev stated Robinhood’s advocacy helped transfer U.S. inventory settlement from T+2 to T+1, that means trades now settle in a single enterprise day, however famous delays nonetheless stretch to T+3 or T+4 round weekends.

The treatment he advocates for is tokenization, which he says allows real-time settlement and freer buying and selling, an method Robinhood is already rolling out in Europe with plans for twenty-four/7, DeFi-enabled inventory tokens.

“It is cheap to say that clearing and settlement guidelines performed a giant position,” Robin Singh, CEO of crypto tax platform Koinly, advised Decrypt. “Whereas sooner settlement may assist cut back these stresses, tokenization does not take away all market or regulatory challenges.”

However critics say the settlement bottleneck solely partially explains what went unsuitable. Whereas the T+2 clearing cycle amplified liquidity strain in the course of the surge, it didn’t have an effect on all brokers equally, elevating questions on whether or not Robinhood’s inside threat controls and capital planning have been satisfactory for the dimensions of demand it confronted.

Musheer Ahmed, founder and managing director of FinStep Asia, advised Decrypt that conventional brokerages have beforehand dealt with comparable surges in demand for inventory with out incident. 

“It’s probably that Robinhood had not factored in capital reserves and threat administration controls for such a excessive scale of curiosity,” he stated.

“Regardless of the dimensions and phrases for collateral, the buck stops with the dealer to have the ability to guarantee clean buying and selling for his or her shoppers always,” Ahmed added. “If a agency is unable to maintain up, then it’s a lacuna that they should work on and repair.”

Tokenization has been attracting rising curiosity, with prime executives framing it because the subsequent step within the monetary evolution.

Tokenization of shares can “probably alleviate the collateral pressures,” Ahmed stated,  if there are “acceptable sensible contracts in place to supply the collateral in real-time.”

Nonetheless, regulatory constraints loom as on Tuesday, SEC workers reiterated that tokenized securities stay topic to present federal securities legal guidelines, that means that blockchain format alone doesn’t change an asset’s authorized standing.

“With out regulatory readability, such efforts are moot,” Tenev wrote, saying collaboration with the SEC and CLARITY-driven tokenization requirements may keep away from one other 2021-style shutdown.