Iām interested in any thoughts on Robinhoodās latest innovative products, such as tokenized stocks, especially for private companies. Also, regarding the rumour on Gold Card release to the EU and the upcoming Stocks & Shares ISA in the UK. Does Trading 212 have any plans or roadmaps for any other products?
This is both a terrible and brilliant idea.
There is a reason why companies are called āPrivate Companiesā - it means in simplistic terms that shares of their business are not openly available to trade on any market. If a custodian bought shares and resold them through ātokensā, then this provides liquidity.
Someone needs to buy the underlying asset, and then redistribute via tokens, almost like a derivative.
Tokenising stocks however could in theory allow a user to have all their positions in one wallet.
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Tokenized assets (including stocks) suffer from liquidity risk, meaning it depends highly from the availability of buyers and sellers. Also meaning higher spreads (Bid-Ask) and potential for higher premiums and discounts in their transactions.
Private companies also suffer for the same problems of the tokenized assets, mentioned above. And also they are extreme difficult to transfer out to other platforms due to their private nature.
Tokenized assets are proprietary assets, the investors also suffer from counterpart risk, meaning only the proprietary recognizes and accept those assets, becoming also difficult to transfer out to other platforms. Probably a few other platforms could accept those with some restrictions.
Iām not sure if the European financial markets regulators will accept tokenized assets for public-listed stocks offered to European retail investors. Even more tokenized assets for private stocks being offered to European retail investors, this is huge red flag for the regulators.
PS: I donāt discriminate Europe and UK, as for me, UK is part of European continent. Europeans regulators include UKās FCA.
It seems, according to Robinhood (RH) UK, the platform offers stocks and RH EU platform offers stock tokens.
According to RH EU platform:
Stock Tokens are derivative contracts between you and RHEU that reference a stock or exchange-traded fund. The value of a Stock Token depends on the performance of the stock or fund. Stock Token trading involves significant risk and is not appropriate for all investors. Restrictions and eligibility requirements apply. Prices shown may not reflect the current price of the asset.
This distinction shows some went wrong in the European RH adventure. It seems Regulatory clouds circling above it.
Tokenised assets are like ADRs with added cryptobro.
Seems like a terrible idea, unnecessary and introducing all kinds of hard to fathom additional risks. So Iām sure retail investors will be all over it like a rash.
Iām suprised the regulator is allowing this. Certainly my opinion of HOOD has gone down again (I didnāt think that was possible). They are going to gouge naive investors something rotten.
On a note of another observation, something they are trying to innovate, especially in the crowded business. The options of these things are always good for relevant customers. Catering to multiple customers is always good. T212 has CFD options, which are a purest form of gamble, so tokenized assets arenāt that bad compared to it. At least, kudos to the engineering team behind the product to release some products, unlike legacy players.