Web3 Innovation or Overstepping? In-Depth Analysis of the Robinhood Stock Token Incident

Recently, a well-known internet brokerage announced the launch of "stock tokens" linked to the equity of several top private companies for European users, drawing widespread attention. However, one of the companies quickly issued a statement claiming no association with these tokens and emphasized that these tokens do not represent the company's actual equity.

This event not only reveals the contradiction between financial innovation and traditional equity management, but also provides a thought-provoking case for regulators and market participants. This article will delve into the impact and significance of this event.

I. Event Background

1. Introduction of the Involved Company

The broker involved is a fintech company based in California that primarily provides free stock trading services to retail investors. The company generates profits through customer cash balance interest, margin financing interest, and selling order flow to high-frequency trading firms.

The company has established a European center in Lithuania and has obtained a financial brokerage license and a cryptocurrency service provider license issued by the local central bank, allowing it to provide cryptocurrency-related services throughout the European Economic Area.

2. Event Overview

The broker announced at a European financial summit that it will launch "stock token" products for EU users, allowing investors to trade over 200 types of US stocks and ETFs in token form around the clock using blockchain technology. Notably, the product also includes tokens of some unlisted companies.

To promote the product, the brokerage airdropped some tokens to EU users as a reward. This news significantly boosted the company's stock price.

However, not long after, one of the unlisted companies issued a statement, clearly stating that these tokens are not equity of the company, and the company has not cooperated with any brokerage or participated in this matter, nor has it endorsed it. The company emphasized that any transfer of equity must be approved by the company, and the company has not approved any transfer actions.

2. Analysis of Operational Model

1. The essence of the Token

The so-called unlisted company token is essentially a tokenized contract on the blockchain linked to the shares held by brokers in the special purpose entity (SPV).

Brokerages link the price of their tokens to the value of relevant shares in a special purpose vehicle (SPV) that holds a certain number of shares in unlisted companies. Therefore, the underlying asset of these tokens is the brokerage's shareholding in the SPV they have established.

When users purchase tokens, they are not buying actual unlisted company stocks, but rather contracts that follow their price and are recorded on the blockchain. There are two layers of separation between token holders and actual equity, and the token price will fluctuate with changes in the value of the related shares in the SPV.

In short, token holders have the right to gain corresponding price difference profits based on the fluctuations in the value of related interests in the SPV, but do not own the actual equity of the unlisted company. This rule is written into the blockchain, and the token becomes a certificate for investors to hold this right.

2. The motivation for brokers to issue tokens

Brokerages launching this type of Token is essentially an attempt at a "consensus asset," aimed at allowing ordinary investors to trade based on their judgment of the future value of unlisted companies. This attempt addresses several pain points in the current investment market:

• Low accessibility of high-quality assets: Top tech companies have not yet gone public, making it difficult for ordinary investors to share in their growth dividends.
• Traditional private equity and venture capital have high thresholds, making it difficult for retail investors to enter.
• The surge in demand from investors for innovative assets reflects a strong interest in new narratives and new asset classes.

In this context, brokers are attempting to break the closed nature of the traditional financial system through tokenized trading, providing retail investors with a new investment channel based on market consensus.

3. Regulatory Status

Currently, the Token product is mainly regulated by the Bank of Lithuania and the European Union. As the leading regulatory authority for brokers within the EU, the Bank of Lithuania has initiated an investigation, requesting details on the structure of the relevant Token, market promotion, and communication with consumers to assess its legality and compliance.

These stock tokens are issued as derivatives under the regulatory framework of the Markets in Financial Instruments Directive II ( MiFID II ). As trading volume increases, they may also need to comply with the oversight of the European Securities and Markets Authority ( ESMA ).

3. Analysis of Benefits and Risks for All Parties

1. Investor Perspective

Revenue:

• Gain indirect access to investment opportunities in private markets
• May profit from the future valuation growth of unlisted companies

Risk:

• Do not own actual equity, cannot enjoy shareholder rights
• Token prices may vary significantly from their actual value.
• The valuation of unlisted companies has a high degree of uncertainty, and Token prices may fluctuate significantly.

2. Issuer's Perspective

Revenue:

• Stock price rises, market value increases
• Expand customer base and capture new market share

Risk:

• The valuation fluctuations of unlisted companies may affect Token prices and harm brand reputation.
• As synthetic derivatives, Tokens are highly dependent on the issuer's ability to fulfill obligations.

4. Differences from Traditional RWA Projects

1. Asset Nature: Traditional RWAs are mostly physical assets, this project targets equity in unlisted companies.
2. Equity Content: RWA usually involves actual ownership, and the project only provides price exposure.
3. Regulatory Framework: RWA has a relatively mature regulation, and the project is in a regulatory gray area.
4. Liquidity: The liquidity of this project may be better than traditional RWA.
5. Risk Attributes: This project has a higher risk and greater volatility.

5. Depth Interpretation

The response to this event has been strong, mainly because it involves traditional financial institutions entering the Web3 space, rather than Web3 institutions penetrating traditional finance, which has a greater impact on the market. However, this model also faces many challenges:

• May harm the interests of other holding institutions.
• Intensify stock price volatility, increase market speculation
• The borderless nature of tokens conflicts with listing rules.
• There are many controversies at the legal level, such as tokens being infinitely divisible, etc.

Although "stock tokenization" has certain drawbacks, it has positive significance as an exploration of Web3 innovation. However, both investors and institutions intending to try it should approach this emerging model with caution.