Lesson Learn from Robinhood IPO: Era of Crypto Exchange Comes to an End or a New Beginning?

By xuanling11 | Crypto Learning | 30 Jul 2021

Robinhood's IPO journey is relatively a long and difficult process. Its reputation from the most popular trading app among young investors to a notoriously infamous reputation.

Not long ago, with $70 million fines from Financial INdustry Regulatory Authority (FINRA) stated of “series of outage in March 2020” and “negligently communicated false and misleading information” that led to 20-year-old trader died by suicide, Rohinhood continues thinking its IPO to gain more attraction on not just stock trading but crypto exchange platform to continue its memes trading culture evolution and further democranize financial trading industry. 

However, market did not react as what the Robinhood perceived. Its IPO had done pretty badly with an opening of 9% dropped after its debuts. 

Robinhood portrayed itself as a crypto frontier that trading crypto easily on a platform which it is a true statement. Also, they likely enter DeFi to further push its crypto adoption to gain more attractions from new users. They also likely developed their own wallet to store and stake cryptos. Its profits have already heavily relied on crypto gaining such as Dogecoin.


How does Robinhood make Profits? 


Profits are on book:

According to The New York Times report, Robinhood lost $1.4 billion in the first three months of 2021.



Its majority of revenues came from payment-for-order-flow (PFOF), a method of earning a fraction of payment for compensation of directing orders to a particular market maker.


Interest Earn:

Rohinhood earns interests from its lending services such as margin loans or company’s revolving credit facilities.


Membership Fees:

The company received revenue from memberships fees for Robinhood Gold.



Profits are not on book (speculative):


Selling Users’ Data:

They convert PFOF into trading data and sell to high frequency trading firms.


Take Advantage of Memes Movement:

The company suspended trades such as GameStop stock squeeze to stop traders' transactions by preventing large losses while revolving its debts against liquidity of equities.



Crypto Exchange Platform Binance:

Binance is one of the biggest Cryptocurrency exchange platforms for trading various cryptocurrencies.

Binance’s founder and CEO CZ or Changpeng Zhao are likely to step down and pass control to a leader under regulation pressure. It may imply the regulations intensify on crypto exchange and future profitability may be uncertain.

It seems that the exchange of the crypto era is coming to an end. Massive movement of Bitcoin has withdrawn out and regulations continue pounding the exchange platforms.

Regulations may impose large taxes to fund future infrastructure bills. Such imposed taxes likely propagate into individual traders with their either profits or trading transactions.


When Robinhood meets with Crypto Trading:

If Robinhood will dip its toe into more cryptocurrencies in the future, it may get itself into territory of regulation war between crypto exchange and financial system.


Current Financial Environment:

We are currently living in the large debt crisis that has hidden and penetrated into every possible asset because the government continues printing money to inflate asset prices to sustain debt levels in order to prolong debt maturity dates.

Every possible profit company would like to become banks like or at least shadow banks like to offer users their financial products that are so complex and hard to understand yet look profitable for the long term.


Binance as a Crypto Shadow Bank and Robinhood Want to Become One:

Binance had many DeFi projects that leveraged debts with cryptocurrencies that operate similarly like a banking system and Robinhood saw it as an opportunity to join the trend.

Since Robinhood has IPOed, it got advantaged compared to Binance to join DeFi projects. Similarly, Coinbase has already IPOed and got its game ahead.


In conclusion:

Crypto exchanges will come into a new era with traditional assets may blend into cryptos while cryptocurrency exchange platforms may fade away gradually.


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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational purposes.

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