Robinhood CEO: Why Stock Tokenization Does Not Require Issuer Approval

Written by: Vlad Tenev, Robinhood CEO

Compiled by: Chopper, Foresight News

All of us, regardless of where we are, should have access to quality financial assets. At Robinhood, we have been pushing to realize this vision globally, starting with U.S. stocks.

Over two months ago, we launched Robinhood stock tokens on the Robinhood Chain, allowing investors outside the U.S. to gain exposure to U.S. stocks and ETFs on-chain. At that time, we did not anticipate such a strong response to this product.

As the scale of adoption expanded, the questions people cared about shifted interestingly: from the fundamental level of "Can we develop such products? Is there anyone willing to use them?" to more technical questions: What should the appropriate product architecture look like? Do companies have the right to approve or veto the tokenization of their own stocks?

This question is particularly critical when discussing how to introduce tokenized stocks into the U.S. domestic market, and I have previously written about it. Although the benefits brought by tokenization have become increasingly clear to users and regulators, we still need to do more work to demonstrate its value to asset issuers. This should not be difficult to achieve, as tokenization can open up a vast global market for issuers' shares, with relatively limited potential risks. However, this requires issuers to make certain adaptations and tokenization platforms to conduct effective market education.

The topic of issuer consent is highly valuable for discussion, as it touches on the boundaries between issuer rights and investor rights. The answer depends on three principles:

• Investor property rights: Shares of publicly traded companies are transferable personal property. Holders of freely tradable shares have the right to decide how to hold and dispose of their shares.
• Issuer authority: Companies control the rights associated with their issued securities but do not control all financial products developed by others based on those securities. Non-sponsored American Depositary Receipts (Unsponsored ADR), options, and third-party structured products have long reflected this boundary of rights and responsibilities.
• Technical neutrality: Whether issuer consent is required should depend on the rights and obligations created by the product, rather than whether the product uses blockchain technology.

This set of criteria is very clear in two extreme scenarios. If a product attempts to change the rights associated with the underlying shares, replace the company's official shareholder register, or impose new obligations on the company and its transfer agents, then issuer participation must be sought.

If the product merely creates an independent financial instrument that holds or is linked to freely transferable shares and does not change the issuer's rights, obligations, or authoritative shareholder registration records, then issuer consent is not required.

There are various paths to achieving stock tokenization. Issuers can directly put their shares on-chain; intermediaries can tokenize ownership of the underlying shares; third parties can also issue independent instruments, using shares as asset backing or linking to shares. The answer to the issuer consent question depends on which specific architecture is actually adopted.

Robinhood stock tokens adopt the third option. Our goal in designing this product is global expansion: covering multiple jurisdictions, thousands of stocks and ETFs, and eventually extending from public stocks to private equity and other asset classes. Stock tokens are independently issued financial instruments, fully backed by the underlying shares on a 1:1 basis, providing users with economic exposure while not altering the issuer's equity structure or the rights associated with the shares themselves.

We chose this architecture to enable stock tokens to be promoted globally without requiring every underlying company to reconstruct its own systems or to individually connect to the product. As in the past, we can also adjust this model as regulatory guidance evolves in the future.

Investors should be clear about the assets they hold, the corresponding rights, and whether the issuer is involved. We will strive to present this information clearly through prospectuses, disclosure documents, and product interfaces.

There is also a broader historical experience for reference.

The paper document crisis at the end of the 1960s overwhelmed the market system reliant on physical stock certificates. The solution at that time was stock freezes and electronic ledger settlement. This mechanism significantly improved market efficiency and gave rise to today's street name holding system, where ownership registration and actual beneficial ownership are often separated among multiple intermediary institutions. (Note: The street name holding system is the current mainstream securities custody mechanism for U.S. stocks, where shares are uniformly registered in the names of brokers and clearing institutions, and ordinary investors only enjoy actual economic rights.)

Given the technological conditions at that time, this was the optimal solution. However, we cannot assume that this is the endpoint of market mechanism evolution.

The lesson from this history is that market infrastructure will continue to evolve with technological iterations. The system built to accommodate the limitations of paper certificates should not directly dictate the operational rules of asset ownership in the on-chain world. Blockchain can provide financial assets with greater portability, transparency, and programmability, and investors should have more choices regarding how they hold and use their assets.

Companies should control the rights associated with their shares, but they cannot manage the legitimate uses of shares once they have already belonged to investors. Putting assets on-chain does not mean that issuers gain veto rights that they do not possess off-chain. Issuers also cannot simply block new groups of investors from entering just because they do not yet understand this new technology.