07/04/2025 | Press release | Distributed by Public on 07/03/2025 20:19
In this week's newsletter, we break down Robinhood's new layer-2 blockchain and stock tokenization push; compare its perpetual futures offering, available in the EU, with Coinbase's U.S. perp product; and explain the SEC's efforts to streamline ETF approvals.
Happy Independence Day to our readers in the U.S. May Bitcoin and decentralized technologies help protect the freedoms we enjoy as Americans and extend them to other parts of the world.
This week at the EthCC conference, Robinhood formally announced a hotly anticipated plan to launch its own blockchain, named the Robinhood Chain, on the Arbitrum Orbit stack. The investment brokerage, led by co-founder and CEO Vlad Tenev, has been one of the most outspoken proponents of blockchains and tokenization. The company's vocal optimism about the technology had sparked considerable speculation about how Robinhood would implement it and which chain it would ultimately build on. In the end, Robinhood decided to launch an Ethereum Virtual Machine (EVM)-compatible layer-2 on the Arbitrum Orbit stack that complements Robinhood's core trading product.
The graphic below replicates a schematic from Tenev's presentation illustrating Robinhood's tokenization process and the function of the Robinhood Chain.
In this system, users could trade stocks as they normally would through the Robinhood app. However, a new "token engine" operating on the blockchain provides users with tokenized derivatives of their assets. Users could transfer these tokens to anyone with an onchain wallet (at least, a whitelisted one), interact with other onchain applications, and self-custody the tokens in their own wallets, all things they can't do with traditional securities.
The actual underlying stocks are held in custody by a U.S. broker-dealer, according to Robinhood CEO Vlad Tenev's presentation. The token engine then creates a "token wrapper" for these assets. When a user buys or sells a tokenized stock, this action triggers a corresponding mint or burn of the token. This process allows users to trade the underlying asset at its real market rate while tapping into that asset's offchain liquidity.
Controversially, Robinhood is allowing EU users to trade tokens indirectly tied to equity in privately held companies including OpenAI and SpaceX. OpenAI went out of its way to distance itself from Robinhood's initiative, emphasizing on social media that the tokens are not equity in the AI company and that it was not involved.
Robinhood's presentation offers a glimpse of what it will mean for traditional finance (TradFi) firms to integrate blockchains. Increasingly, it is clear these firms want sovereign block space they control. For them, the main value-add and disruption from the technology comes in the form of 24/7 trading.
Rollups have become a popular model for companies looking to build on sovereign block space. Under this model, companies have a lighter lift in spinning up a chain because rollups don't require a full validator set and stake, and companies are responsible only for running the sequencer which they can solely control. The model also offers an additional revenue source for the company by allowing them to directly monetize the activity on their chain by capturing all the transaction fees, instead of sharing them across a diverse validator set. Rollups grant these upsides all while allowing for absolute customizability.
For example, Base, the Coinbase-operated rollup, generates $150,000+ in sequencer fees daily on average which, net of costs to operate the rollup (e.g. onchain data costs, fees paid to OP Superchain, and cloud and hardware costs), is passed directly to Coinbase. In Robinhood's case, operating the sequencer while owning the assets tokenized on the chain creates a powerful synergy. This model allows the company to monetize its block space by encouraging developers to build applications that utilize these specific tokenized assets. This strategy effectively turns the block space into a sellable commodity and allows Robinhood to monetize the full "tokenization stack" from offchain trading to onchain utility.
A primary emphasis of Robinhood's presentation was on immediately enabling 24/5 trading, with the eventual goal of 24/7 trading when Robinhood Chain goes live. Robinhood's recent acquisition of crypto exchange Bitstamp is expected to play a critical role in realizing this vision; it will serve as the venue facilitating tokenized asset trades offchain and outside market hours on weekdays. The market moving to a 24-hour model for trading has significant consequences. For users, it is mostly positive and allows them to trade at any time of the day, providing a lift to the experience of owning traditional assets. However, it also introduces new risks. When assets trade around the clock, prices can fluctuate when users are not online.
The consequences for traditional markets are more disruptive if they do not evolve to meet the 24/7 standard being set by entities like Robinhood and all the others who follow. As evidenced by the schematic above (which is derived specifically from Robinhood CEO Vlad Tenev's presentation and we have not independently verified), Robinhood's tokenization effort effectively pulls assets out of the traditional market trading flow and inserts them directly onto blockchain rails (or Bitsamp) to allow 24-hour trading. This directly challenges the deep concentration of liquidity and activity that gives major TradFi exchanges (e.g. NYSE) their competitive advantage. This moving of trading volume could erode the exchanges' activity and core revenue streams, which rely on trading fees and the sale of market data. While Robinhood is just a single fish in a massive ocean, more brokerages adopting a blockchain-based strategy for trading could put immense pressure on traditional exchanges.
Whether Robinhood is ultimately allowed by regulators to conduct securities trading onchain in this manner remains a significant open question. Dozens of firms are working with the SEC to tokenize equities, including Galaxy, and it's not clear whether the SEC itself has blessed Robinhood's approach, which definitely involves a U.S.-listed pubco (Robinhood), appears to involve at least one U.S. listed broker-dealer (per Tenev's presentation), but is only available to European end-users. It's possible that issuers themselves, public or private (such as OpenAI), may also object to their shares being traded this way. And just on Monday, the Securities Industry and Financial Markets Association (SIFMA), the leading trade association representing securities firms, investment banks, and asset managers in the U.S. and globally, sent a harshly worded letter to the SEC that said its members "have been reading with significant concern" about requests for exemptive relief related to tokenization. Specifically, SIFMA urged the SEC not to allow the trading of tokenized equities outside of the Regulation National Market System (Reg NMS) framework, something Robinhood appears to be doing (albeit outside the U.S., though with US-listed equities). While we view SIFMA's letter as representing its members' interests as intermediaries, it does show the extent to which Robinhood's tokenization model (which itself goes well beyond what most are proposing onshore) and tokenization in general is seen as challenging the traditional system.
Regulatory questions notwithstanding, the pressure from tokenized assets extends beyond enabling 24-hour trading. Tokenized assets are inherently programmable, which unlocks more streamlined utility than their traditional counterparts can offer. For example, tokens could be used as collateral in decentralized finance (DeFi) protocols, integrated into automated financial strategies, or used to streamline corporate actions like dividend payments. This added layer of functionality could make the onchain version of an asset more versatile than their traditional counterparts. If incumbent exchanges cannot support the utility introduced by tokenized assets, they risk becoming custodians of a less functional version of the same assets, further incentivizing users to move to blockchain-based alternatives.
This sets the stage for a race between nimble fintechs and incumbent exchanges to become the centers of trading in the digital world. The advantage for companies like Robinhood lies in their agility; unburdened by legacy infrastructure, they can build and launch blockchain-native solutions more quickly. In this sense, the fintechs are already "off to the races," while the larger exchanges face a more complex and slower path to modernization.
As for OpenAI's disavowal of Robinhood's tokenization of its private company shares, we can't blame the AI company for clarifying to the public that Robinhood's tokens do not confer equity ownership. They're derivatives that provide indirect exposure to the underlying asset. Investors should always read the fine print and understand what they're buying. In the bigger picture, we're unlikely to see tokenization of shares in private companies at scale without the express consent of issuers themselves. - Zack Pokorny
In addition to tokenized stocks, Robinhood also unveiled a perpetual futures product available to users in the European Union. Meanwhile, Coinbase is bringing a regulated version of perps to U.S. customers.
Robinhood's perps are side bets on the prices of bitcoin and ether and offer up to 3x leverage, modest by crypto standards. Its approach leverages existing perpetual futures markets through its acquisition of Bitstamp, allowing for a straightforward integration of traditional perpetual contracts as commonly understood in the crypto market.
Coinbase's contracts, regulated by the Commodity Futures Trading Commission (CFTC), will offer leveraged exposure to nano bitcoin (0.01 BTC) and nano ether (0.10 ETH) contracts with 24/7 trading. Unlike traditional perpetual futures, which have no expiration date, the Coinbase U.S. perpetuals have an underlying five-year maturity in addition to the perpetual funding requirements. This represents a novel attempt to align with CFTC regulations while providing products that mimic the characteristics of traditional perpetual futures. By incorporating features like hourly funding rates and extended expirations, Coinbase aims to offer U.S. traders a regulated alternative to offshore perpetual futures markets. However, this structure may present challenges in terms of market adoption and liquidity, because it deviates from the perpetual contracts commonly used across crypto today.
While Robinhood's expansion into perpetual futures in Europe is a notable development, it builds on existing market structures and technologies, offering incremental innovation. Coinbase's launch of CFTC-compliant perpetual-style futures, on the other hand, is a more pioneering effort within the U.S. regulatory framework but comes with its own caveats.
It is unclear what the final form of the Coinbase perps will be. There is no detailed product page. The modifications Coinbase did to perps to make them viable under CFTC regulations, making the underlying asset a five-year future, could lead to a fundamental difference in their pricing dynamics vis-à-vis typical perpetuals. Coinbase states that the funding dynamics keep the price close to spot, but it is not clear whether the perpetual funding rate will be based on the difference between the perp mark price and the spot price, or between the perp mark price and the future price.
If it is the former, and the perp funding is based off spot price and not the future price, an interesting dynamic develops. If the future market is in a typical state of contango, the future price should exceed spot by the forward rate annualized to the future's tenor. If the perpetual funding rate is based on deviations from the spot price, and the futures price is higher than spot, a positive funding dynamic should persist. The tendency of the perp mark is to trend to the underlying future price but is tempered by the funding rate, which will get increasingly positive the greater the futures basis and the greater the perp mark distance from spot, pushing the perp price closer to the spot price. This dynamic will depend greatly on the details of the perp funding calculations, but the product could present an interesting hedging option for U.S. institutional funds.
If the structure of the product is as described above, Coinbase's U.S.-style perps should consistently be marked above spot and thus have a positive funding rate. A structural funding dynamic like that could make for a very attractive short leg for delta-neutral funds such as Ethena or Abraxas, but the very same funding dynamics that make it attractive as a hedging vehicle make it less appealing for long-biased investors. However, the advantageous tax treatment of futures contracts, where gains and losses are taxed at a favorable 60/40 long-term/short-term rate, may still attract investors compared to trading spot ETFs, making them appealing despite their structural funding drawbacks.
This is an interesting solution from Coinbase given the regulatory constraints, but hopefully this is only a liminal space while the CFTC deliberates how to regulate the budding onshore perps market. - Thad Pinakiewicz
The U.S. Securities and Exchange Commission (SEC) reportedly plans to create a "generic standard" for token-based ETFs. The regulator is in talks with exchanges to create a generic template for issuers to use when applying for crypto ETF approvals, journalist Eleanor Terret reported.
The current process entails issuers filing with the SEC's Division of Corporation Finance an S-1, a comprehensive disclosure document, and exchanges going through a 19b-4 listing approval process with the SEC's Division of Trading and Markets. Both processes are often iterative, with several amended filings made by issuers and exchanges based on consultation and feedback from the SEC.
As the Bloomberg Intelligence chart below shows, there are dozens of crypto ETF applications before the SEC for assets like SOL, LTC, XRP, DOGE, ADA, DOT, AVAX, SUI, and TRX. Most of these currently have final SEC approval/denial deadlines that begin in October. On Wednesday, the SEC halted the conversion of Grayscale's Digital Large Cap Fund into an ETF, extending the review period. That fund sought to list as a multi-asset spot ETF with BTC, ETH, SOL, XRP, and ADA as the constituents.
Source: Bloomberg Intelligence
There are more than 35 pending applications for spot crypto exchange-traded products (ETP) and the sheer volume of applications before the SEC is probably overwhelming. These 35+ applications involve at least 12 issuers seeking to create ETPs tracking 11 different assets. These issuers and assets are all different and may present different investor, exchange, and regulator questions, each requiring detailed attention by the SEC. Creating a common threshold for the assets in question, the application format, and the registration process would give all stakeholders clarity on necessary standards for listing.
Among the criteria are likely to be standards around the appropriateness of the underlying cryptoassets themselves. For example, immature cryptoassets with insufficient seasoning in the marketplace, high degree of ownership concentration, or dubious decentralization are unlikely to be allowed through this "fast track" pathway. Even if a cryptoasset meets the minimum standard, its market dynamics may be insufficient to support an ETP wrapper. Daily volumes, bid-ask spreads, spot exchange listing depth, or other characteristics may be included among the criteria.
Broadly speaking, the thresholds set in the House's CLARITY Act to qualify as a digital commodity, which themselves were written with technical assistance from the SEC, may serve as a decent indicator of what the token criteria for this ETP "fast-track" process may be. These include 1) no person or group under common control may "control or materially alter" network rules; 2) no group may unilaterally control more than 20% of aggregate validator voting power; 3) issuers, affiliates, or other insiders may not possess more than 20% of the token ownership; 4) all core code must be publicly available and open-source; 5) the protocol "does not restrict or prohibit" any outside party from running nodes, validating, or otherwise using the chain; 6) transactions and state changes must be executed solely by pre-defined, on-chain rules; and several more.
A common, generic process for listing such ETPs would greatly benefit issuers, exchanges, and the SEC itself, given the number of applications either pending or in the works. However, just because it may become easier to list crypto ETPs doesn't mean there will be significant demand in the market to own them. While the U.S. Bitcoin ETPs have seen net inflows of almost $50 billion since launch, that's 11x the Ethereum ETPs net inflows, even though BTC is only 7x the market cap of ETH. Said simply, Bitcoin ETPs have vastly outperformed Ethereum ETPs on a BTC-to-ETH market-cap-weighted basis. It's very possible that longer-tail cryptoasset ETPs will similarly underperform Ethereum ETPs, and so on.
Nonetheless, the creation of a "fast-track" ETP listing process, combined with the current SEC's more limited view about which cryptoassets constitute unregistered securities, likely means that many, many more spot crypto ETPs are coming to U.S. capital markets. - Alex Thorn
It has been almost two months since Ethereum's Pectra upgrade went live on May 7. The upgrade included increases to the blob target and limit under EIP-7691. Blobs are designated space on Ethereum's consensus layer for rollups to post their batched transaction data. Previously this was done through call data in execution-layer transactions, but demand for cheaper data posting to improve the user experience on rollups forced the introduction of blobs.
Each Ethereum block has a target and maximum number of blobs it can carry. Currently, the target is six and the maximum is nine. The cost per blob rises as the target rate per block is reached and exceeded. Blobs today are occupying only two thirds of their target rate per block. As a result, blobs have been virtually free with demand for them being below the target rate. Rollups have paid an average of just $0.000009 per day on consensus layer blob objects over the last month. Thia has created a dynamic where rollups and their users benefit from cheap data posting at the detriment of Ethereum revenue and ETH burned. While it is negative for Ethereum at face value, the goal of blobs was to improve the experience of using rollups and their scalability, both of which Pectra and blobs accomplish.
The amount of ETH being burned from rollup blob activity is at record lows using the rolling 30-day sum of ETH burned from consensus layer blob object fees and execution layer transaction fees. With blob objects costing less than one thousandth of a penny per day, the amount of ETH being burned by their cost is effectively zero. Execution layer fees for confirming rollup blob objects have contributed 99.999% of all ETH burned by blobs over the last month. Using the 30-day sum, only 42 ETH have been burned by rollups via blobs. This compares to the 30-day high of 1,654 ETH burned when the blob target rate per block was consistently being hit between December 2024 and January 2025..
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