Robinhood Stock Tokens Are a Sham
It's a step in the right direction, but I'd stay away. The Friday Filter #86.
Good morning investor 👋,
Welcome or welcome back to The Friday Filter—the quality investor’s market recap.
Robinhood—America’s younger generation’s favourite commission-free stock broker—announced this week that its app is now available in the EU, allowing European customers in the region to buy and trade over 200 U.S. equities as well as private companies such as SpaceX and OpenAI (we’ll get talk about this).
Problem is, it’s a complete sham.
Let’s get into it. (10 min read)
PS: Happy 4th of July to all my American readers! And to my Canadian readers, I hope you enjoyed your July 1st earlier this week1.
Today at a glance:
The Filter;
Robinhood stock tokens, and the future
📄 In other news
📚 Resource of the week
Robinhood stock tokens, and the future
The Filter
Robinhood launched in the EU this week and is now allowing app users in all 31 EU and EEA countries to trade U.S. stocks. But there’s a catch: it’s not actually buying the stocks, but tokens.
Robinhood Europe gives investors on their platform access to 200 U.S. stock and ETF tokens to trade 24/5, with limited access to private stocks starting July 7, 2025, where they can also invest in SpaceX or OpenAI tokens. (EU users who sign up before this date will get a $5 credit for both SpaceX and OpenAI.) Other features are expected to be added soon, but I want to stress this token part because that’s the key here. Even though they’re currently only available in Europe, it’s likely to spread rapidly.
What are “stock tokens?”
Robinhood stock tokens are based on the blockchain (the tech that powers crypto) and are coins issued by Robinhood to mimic the price movements or share movements of the underlying equity of the token.
In the normal process of buying a stock on a broker, you’ll spend $100, and you now own equity in the business, can receive dividends, etc. However, in the case of Robinhood Europe, buying the token removes every single aspect of that. When a user buys a stock token of, say, Apple, the user is buying a contract with Robinhood, where they are promising to track the same movement of the actual securities. Any loss, any gains; Robinhood will guarantee it as if you own the actual stock. But you still don’t actually own the securities.
It’s like any traditional derivative security that you’d see on the market like an ADR or CDR (more below), just crypto-esque.
In the case of private companies like OpenAI and SpaceX, which aren’t on the open market, Robinhood uses its stakes in the companies that it owns as the way to track the performance to then mimic for its stock token holders. Again, no one is actually buying equity when they purchase the stock token; they’re simply buying an agreement from Robinhood that says:
“Ok, you buy this, and we’ll guarantee your token value matches the same price movements as the normal equity.”
It’s similar to how fractional trading works in a broker, where when a user buys 0.2 shares of a given stock, the broker is giving you an IOU of the value of the stock, usually backed up by a bank intermediary and not the broker itself (because one cannot buy percentages of shares on the open market).
In finance terms, these stock tokens would be synthetic exposure: you get the gains or losses (exposure), but none of the actual ownership.
In the case of OpenAI and SpaceX tokens, which are private companies not tracked on any index or stock chart, Robinhood owns equity in these businesses and uses that as its measure to track performance. All users who buy stock tokens on Robinhood in OpenAI or SpaceX will get that performance as if they were holding the equity themselves—despite quite literally not.
In the case of Robinhood, Robinhood is the one underwriting or financially backing your contract. And given Robinhood’s past liquidity issues, I’m not sure how that’ll turn out if this were implemented in America, but I digress.
On the surface, I understand the idea. And it’s a cool idea.
But last time something similar like this came up involving private equity (Destiny Tech100 Inc (DXYZ), there were so many catches it was unbelievable. I don’t see that as clearly here, but it’s something to look out for. You can read my DXYZ analysis here for context.
Should Europe have access to the American markets? Probably. Not sure why EU lawmakers thought tokens were a safer option than allowing Europeans to purchase U.S. equities, but anyway; I’m all for democratizing access to world markets, so if this is a way for Robinhood to allow Europe to have this in a cheaper way, that’s awesome. When it comes to allowing everyday folks to have exposure to private companies, I’m even more for making that accessible.
Heck, you know how many businesses I’d love to own that are private?
Here’s a rough list, actually (click for more):
So the idea behind it is admirable. But the way they carried it out? A bit shammy, in my opinion. So shammy that the shammiest company in the world responded to it2 (again, this from the company with a current equity setup where even private investors buying equity aren’t even buying equity because the business is really a non profit but acts as though it isn’t, but is trying to change that):
These “OpenAI tokens” are not OpenAI equity. We did not partner with Robinhood, were not involved in this, and do not endorse it. Any transfer of OpenAI equity requires our approval—we did not approve any transfer.
Please be careful.
[Source]
Regardless of whether or not OpenAI did endorse it, Robinhood isn’t selling any equity. That’s the truth that OpenAI got wrong. The marketing of this tokenization was done poorly on Robinhood’s part and was arguably less transparent than it should have been about what the product really is.
However, the Robinhood CEO did end up responding:
At our recent crypto event, we announced a limited Stock Token giveaway on OpenAI and SpaceX to eligible European customers. While it is true that they aren’t technically “equity” (you can see the precise dynamics in our Terms for those interested), the tokens effectively give retail investors exposure to these private assets. Our giveaway plants a seed for something much bigger, and since our announcement we’ve been hearing from many private companies that are eager to join us in the tokenization revolution. THANK YOU 🙏
[Source]
Clarification: These tokens essentially, not effectively, give retail investors exposure. It’s a shadow exposure to the underlying private holding that Robinhood owns, but there’s still no equity transfer for the investor.
My argument that this is a sham stems from the use of this type of wording. It gives me weird vibes, even though it does add up.
That’s why it feels like a sham, not a scam. More of a crypto marketing ploy than a valuable innovation.
Look, I support any venture that gives retail investors access to private equity (even if indirectly) that only billionaires like Peter Thiel or [insert some other venture capitalist] usually have access to. Even if it’s “iffy,” it does seem like a legit step toward that.
However, I’m just going to say it point blank: if stock tokens ever come to North America (or anything similar), I will probably not be buying. I do not like the idea of not having equity in a business I buy, nor do I trust any third party with my equity—never mind a low-liquidity e-broker tech company—to collateralize my agreement. That’s just preference though.
Is this the future?
If we start seeing America become ever more pro-crypto (as it seems is happening), and if we start seeing companies like Robinhood rush to integrate anything remotely crypto as a consequence, then yes. So the answer is yes: it’s most likely the future if things stay as they are, or are heading in that direction. Does that mean it’s worth it? No, absolutely not.
Why is running financial transactions on the blockchain and/or using stock tokens better than traditional financial transaction infrastructure or synthetic equities or derivatives like Canadian or American Depository Receipts (CDRs, ADRs, etc.), or some other product like that (which are arguably safer because they’re backed by a bank which is more traditionally regulated, and not a fintech business with historical low liquidity)
If the argument is “It’s decentralized,” try again. Because, if I’m not mistaken, Robinhood is the one issuing and controlling its stock token infrastructure that runs on blockchain tech, no? That would be the same for all other brokers who implement this tech.
Yes, it’s the future, or so it seems. But I see no reason for blockchain technology like this to replace the traditional contract for difference (synthetic equities) (CFDs) or fractional shares that we have today.
We’ll see; I’ll learn with time. In the meantime, that’s my spiel.
a. 📄 In other news
Lulu is mad that Costco is making money from clothes of similar quality and appearance to Lulu products. Lulu claims it’s trade infringement. As a former Lulu shareholder, I’m not sure. I do know Costco is taking share, but will this lawsuit really combat that? Again, not sure. I’ll be watching.
I think it’s sad how Adobe missed the bag here. Obviously, it wasn’t their fault, but much like Meta did with Scale AI, Adobe could have revised an agreement for 49% direct ownership, but 100% operational control to avoid any scrutiny. Oh well, just another great business for me to research, and for all of us to buy.
I was just recently talking about this company in the Discord I believe, and interestingly enough, I’ve gotten much more interested in learning more about it. Excited to share more soon.
Apple explored making a cloud service
This would’ve been for its developers only, and would’ve been in direct competition with AWS, GCP, and Azure. It also would’ve been a great way for Apple to become more self-sufficient and maybe venture into its own cloud ambitions. But sadly, it looks like this is another one of Apple’s wastes of R&D.
b. 📚 Resource of the week
Noticed a few folks in the Discord chatting about ASML and its China risk, and almost immediately thought about Taiwan due to its relation with TSMC.
There’s been a lot of talk about TSMC and the risk of Chinese invasion, considering the cultural tension between Taiwan and the Mainland, and I’m here to share this article to dismiss most of those concerns. My simple thesis on TSMC’s China risk hinged on the idea that if Xi wanted to invade Taiwan, he would’ve already (but he knows the cost). It’s obvious, but it’s correct.
The cost in question? That’s explained in the article.
I’m still not considering a position in TSMC at the moment, even with the low likelihood of such a risk—but that’s due to my risk-averse nature of investing. That being said, any conflict with Taiwan would negatively affect companies like Amazon, Google or even Nvidia, so it’s good to be informed regardless. And that risk is spread across the market, not just TSMC.
Great read if you have the time.
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Thanks for reading today. Cheers, friend. I better see you next time, or else Warren Buffett will talk bad about your biggest portfolio position.
All of my links here.
From the archives:
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Also so shammy that they said “screw non-profit” for the sole purpose of being able to convert into a for-profit entity to raise capital and use stock-based compensation as a way to avoid employee poaching from Meta and other big tech companies. Yup, that’s OpenAI.