Robinhood, the US-based $5 billion fintech company, is announcing that they will have some of the company’s shares tokenized on a blockchain based on Stellar.
Swarm to Provide Securitized Robinhood Tokens
Robinhood was in the news earlier this year when, as an already successful tech company, they announced the opening of their exchange, where users could invest in cryptocurrencies. Users could not, unfortunately, withdraw to their own wallets.
This week they are making headlines again, with the announcement of a partnership with the crypto startup Swarm, which is set to put some of Robinhood’s shares in a tradable form on a blockchain. The project will not involve putting anything onto the actual Stellar blockchain itself, however; the protocol will merely be cloned and set up under Swarm’s control as the Robinhood Equity Token (RHET).
This sacrifices the decentralized aspect integral to many of the projects in crypto, but Swarm sees this as inevitable – for now, at least. Robinhood’s shares are classified as securities, and US regulations ban the anonymous trading of such assets.
Swarm hopes that, nevertheless, the tokenized trading of the shares will allow greater liquidity, as the tokens can still be traded faster and more cheaply than on the stock market. Swarm also hopes that as crypto becomes more regulated, we will start to see exchanges with strict enough KYC processes that they can allow securities trading only by users who by U.S. law have the right to take part in such trades.
Still in Experimental Stages
Exchanges with such rigorous goals for compliance hardly exist at the moment, however, with so many of the most popular projects leaving experts wondering how long it will take before they are pulled out of regulatory limbo and classified as securities.
Ultimately, however, this is a small experiment. Robinhood risks very little from putting up a small fraction of their shares as a test case, and legally speaking these tokens will not provide actual legal ownership of the shares, only the right to benefit by them.
A small group set up by Robinhood and Swarm will control the actual shares themselves, and if anyone does gain control of some of these tokens which it turns out did not have the right to purchase them, the experiment is fully centralized, and their tokens can simply be burned. It will nevertheless be a compelling test case. Swarm has plans for similar tokenization of shares of the crypto companies Coinbase and Ripple.