Web3 Lawyers Analyze in Depth: Robinhood's Stock Token, Innovation or Overstepping?

Recently, the American internet brokerage giant Robinhood announced the launch of "stock tokens" linked to the equity of top private companies such as OpenAI and SpaceX for European users, once again bringing the cutting-edge topic of real-world asset (RWA) tokenization to the forefront. However, OpenAI quickly released an official statement, clearly stating that it has no connection with the tokens issued by Robinhood and warned that "these tokens do not represent the actual equity of the company."

This event not only reveals the profound contradiction between financial innovation and traditional equity management but also provides a thought-provoking case for global regulators and market participants. The Crypto Salad team will combine relevant explorations related to RWA to deeply analyze the impact and significance of this case.

(Image source: 36 Kr)

1. Event Background

1. What is Robinhood?

At its most basic, we need to know what kind of company Robinhood is? Robinhood Markets, Inc. is a financial services company based in Menlo Park, California, USA. The company is known for providing stock apps and websites primarily aimed at retail investors. The services offered by Robinhood online are completely free. As a fintech company, Robinhood is committed to innovating financial products and service models.

Robinhood primarily offers trading of U.S. listed stocks, exchange-traded funds, related options, and cryptocurrency trading, as well as cash management services. Its positioning is to provide retail investors in the U.S. with commission-free trading services for stocks, options, ETFs(, cryptocurrencies, and other assets. The main sources of profit come from interest income on clients' cash balances, interest on margin loans, and selling order flow to high-frequency trading firms.

It has established a European center in Lithuania and created the entity Robinhood Europe UAB. According to public information, this entity has obtained an A-class financial brokerage license and a cryptocurrency asset service provider license issued by the Bank of Lithuania, allowing it to provide services such as custody, management, and trading of cryptocurrency assets in Lithuania and across the European Economic Area.

2. Event Summary

The event specifically refers to: Robinhood announced at the European Crypto Finance Summit held in Cannes, France, the launch of "stock tokens" for users in the EU and the European Economic Area, allowing investors to trade over 200 U.S. stocks and ETFs around the clock in token form using blockchain technology. Among them, the most notable is the tokenization of the unlisted stocks of OpenAI and SpaceX, and airdropping 5 euros worth of OpenAI coins and SpaceX coins to EU users as a reward to promote the product. As a result of this news, Robinhood's stock price rose significantly.

However, in the early morning of July 3rd, Beijing time, OpenAI issued a statement on its official social media, clearly stating that these OpenAI tokens are not equity of OpenAI, the company has not cooperated with Robinhood, nor has it participated in this matter, and does not endorse it, emphasizing that any transfer of OpenAI equity must be approved by the company, and the company has not approved any transfer actions. Regarding this news, many people may have questions:

• What is this OpenAI Token...
• Is the statement from Robinhood and OpenAI contradictory...
• What are the operating model and legal basis for Robinhood's issuance of OpenAI Token and SpaceX Token...
• What is the difference between this event and traditional RWA projects...

The cryptocurrency lawyer team will interpret one by one.

(Image source: 36 Kr)

2. Operating Model

1. What is OpenAI Token?

First, the Crypto Salad team will help everyone understand what the so-called "OpenAI Token" is. This "OpenAI Token" is essentially a tokenization contract on the blockchain linked to the shares held by Robinhood in a special purpose vehicle (SPV). Robinhood ties the price of its token to the value of OpenAI shares in the SPV by holding shares of an SPV that controls a certain number of OpenAI shares.

Therefore, the underlying asset of the OpenAI Token is the equity held by Robinhood in its established SPV company. When users purchase the token, they are not buying actual OpenAI stock, but rather acquiring a contract that follows its price and is recorded on the blockchain. There are two layers of separation between the token holders and the actual equity, and the price of the OpenAI Token will fluctuate with the changes in the value of OpenAI shares within the SPV.

In other words, if the valuation of OpenAI rises, the value of the shares in the SPV increases correspondingly, the value of the SPV itself increases, and the value of the shares of the SPV held by Robinhood increases, then the price of the OpenAI Token may also rise, and vice versa. Simply put, Token holders have the right to obtain corresponding profit from the price fluctuations of the rights related to OpenAI in the SPV, but do not own actual equity in OpenAI. This rule is recorded on the blockchain, and the Token becomes a certificate for investors to hold this right.

2. Are the statements of both parties contradictory?

As can be seen from the above, the statements from Robinhood and OpenAI are not contradictory. What OpenAI denies is that the "OpenAI Token" issued by Robinhood does not represent equity in OpenAI, emphasizing that it has not collaborated with Robinhood, has not participated in this matter, and does not endorse it. Any transfer of OpenAI equity must be approved by OpenAI, and it has not approved any transfers.

Robinhood has also acknowledged that these tokens are not true OpenAI equity, but rather equity held by Robinhood in an SPV, providing retail investors with indirect exposure to the private market. Therefore, both parties recognize that the "OpenAI Token" is not true equity of OpenAI, and there are disputes regarding the compliance and reasonableness of Robinhood's issuance of this token.

The issuance of OpenAI Token by Robinhood operates as follows:

Returning to the statements made by OpenAI and Robinhood, OpenAI denies that "Token = equity," emphasizing that it has not authorized any equity-related products, which is consistent with the process stating "Token ≠ direct equity"; Robinhood acknowledges that the token is "a contract linked to the price," which aligns with the design of "indirectly linked to value through SPV" in the process. The point of contention between both parties lies in whether "this indirect linkage is legal and compliant," rather than the factual description of the process itself.

3.Why did Robinhood issue this Token?

The "OpenAl Token" launched by Robinhood is essentially an attempt at a "consensus asset": allowing ordinary investors to trade based on their judgment of OpenAl's future value in the form of a Token. This attempt addresses the three major pain points in the current investment market:

• First, the accessibility of high-quality assets is low: top technology companies like OpenAI and SpaceX have not yet gone public, making it difficult for ordinary investors to share in their growth dividends.
• Secondly, the high threshold of traditional private equity and venture capital prevents ordinary retail investors from entering.
• Finally, the demand from investors for innovative assets has surged: the explosive growth of alternative assets such as cryptocurrencies, NFTs, and meme stocks in recent years reflects investors' strong demand for new narratives and new asset classes.

In this context, Robinhood attempts to break the closed nature of the traditional financial system through tokenized trading, providing a new investment channel based on market consensus for a large number of retail investors. Robinhood chose OpenAI because it is a leading company in the field of artificial intelligence, with a high level of market attention and influence.

Robinhood has launched OpenAI Token, which can attract investor attention and participation in trading through its brand effect. For example, airdropping OpenAI Token to EU users as a reward can effectively increase user registrations and trading volumes, enhance the company's visibility and market influence, while also driving the trading of other tokenized stock products.

(Image source: Galoy Research)

4. Regulatory Authorities

Robinhood's issuance of OpenAI Token currently needs to be regulated by the Bank of Lithuania and the European Union. Robinhood has obtained an A-class financial brokerage license issued by the Bank of Lithuania and a cryptocurrency asset service provider license from the EU, with the Bank of Lithuania being its lead regulatory authority within the EU. In response to the issuance of OpenAI Token by Robinhood, the Bank of Lithuania has launched an investigation, requiring Robinhood to provide details regarding the structure of the related token, marketing, and communication with consumers to assess its legality and compliance.

Robinhood's stock tokens are issued as derivatives under the supervision of the Markets in Financial Instruments Directive II (MiFID II). As trading volumes increase, they may also need to comply with the supervision of ESMA (European Securities and Markets Authority). Robinhood must ensure that it meets relevant requirements such as prospectus disclosures. Currently, the tokens are only open to European citizens and have not yet been made available to American citizens. If they intend to enter the American market in the future, they may also be subject to the regulation of the SEC (U.S. Securities and Exchange Commission).

The reason Robinhood can issue OpenAI tokens in Europe is mainly because:

1. Compared to the strict "qualified investor" system in the United States, the European Union has a relatively lower threshold for retail investors to participate in trading complex financial products.
2. Robinhood's stock tokens are issued as derivatives under the regulation of the Markets in Financial Instruments Directive II (MiFID II), with the underlying assets custodied by licensed institutions in the US, thereby meeting the EU's requirements for financial product compliance to some extent.
3. Robinhood provides services to retail investors in the EU using its application, and its cryptocurrency application in Europe has evolved into a more comprehensive investment platform.

3. Benefits and Risks for All Parties

1. The returns and risks of investors

So, what benefits can investors and subscribers gain from this? What risks will they bear?

First, when professional investors subscribe to the OpenAI Token, they obtain an investment opportunity. Robinhood stated that these tokens allow retail investors to indirectly access private markets, opening up investment access. By linking the price of the OpenAI Token to the value of the OpenAI shares represented by the special purpose vehicle (SPV), subscribers theoretically have the chance to profit from the future valuation growth of OpenAI. If OpenAI performs well and the valuation increases, the price of the token may rise accordingly, and subscribers can earn a profit by selling the tokens. This is the primary benefit that investors can reap.

Investors purchasing OpenAI Token are not buying actual shares of OpenAI or shares of the SPV, but rather gaining an indirect exposure related to the price of OpenAI shares in the SPV. From a legal perspective, token holders do not possess voting rights, information rights, or any equity-related rights, nor do they have actual ownership of OpenAI or the SPV company. It is more akin to having a "valuation tracker," which allows them to gain profits or incur losses based on the fluctuations in the token price.

However, this investment method also carries certain risks. Because OpenAI has publicly stated on social media platforms such as Twitter that this Token is not equity in OpenAI, and the company has not partnered with or endorsed Robinhood. This means that subscribers do not own actual equity in OpenAI, and cannot enjoy the real shareholder rights such as voting rights and dividend rights, and their rights cannot be protected in the same way as holding real equity. In other words, based on the content released by OpenAI, it seems that investors can only gain profits through the appreciation of OpenAI's equity value, and their status is not equivalent to that of shareholders.

Of course, investors will also face value fluctuations and valuation risks when subscribing to this type of Token. Although the Token price is linked to the value of the OpenAI shares held by the SPV, it may not accurately reflect the actual value of OpenAI, and there may be significant deviations. Furthermore, since OpenAI is a privately held company that is not publicly listed, its valuation itself carries a high degree of uncertainty. Once the valuation experiences significant fluctuations, the Token price may also fluctuate dramatically, and subscribers may face substantial losses. Therefore, the crypto legal team still advises investors to carefully discern the risks involved, as the risk factor is much higher than that of traditional RWA projects. 2. Project party's income and risk.

For the issuer Robinhood, it may reap considerable profits.

First of all, the most intuitive benefit is that after the announcement of this event, Robinhood's stock price surged by about 10%. This indicates that the market recognizes the innovative product it has launched, enhancing the company's market value and increasing shareholder equity, while also boosting the company's influence and visibility in the capital markets. Additionally, the company can attract more investors to invest in and subscribe to the company's stock, thereby achieving the purpose of fundraising.

In addition, the potential benefit for Robinhood is that it can capture market share and broaden its customer base through this event. The tokenization products launched by Robinhood are aimed at EU customers, lowering the investment threshold and simplifying the complex KYC verification process.

Of course, Robinhood will also bear certain risks.

In terms of market risk, the price of OpenAI Token is linked to the value of OpenAI shares in the SPV, while OpenAI, as a private company, is valued based on various factors such as technological research and development progress, the effectiveness of business collaborations, and the competitive landscape in the industry, resulting in high volatility and uncertainty.

Once OpenAI's valuation falls short of expectations or even declines, the value of shares in the SPV will shrink accordingly, leading to a drop in the token price. This not only causes losses for investors but may also undermine market confidence in Robinhood's business, negatively impacting its brand reputation and overall business development.

Credit risk should not be overlooked. OpenAI Token is essentially a synthetic derivative, where investors do not directly hold the underlying asset but gain economic exposure to price fluctuations through contracts, which means the realization of investors' rights highly depends on Robinhood's ability to perform.

If Robinhood faces an operational crisis, is unable to fulfill contractual obligations, or even engages in fraudulent activities, it will directly harm the interests of investors, trigger a crisis of trust in the market, and subsequently affect its existing business and future business expansion.

4. The difference between this project and traditional RWA projects

It is evident that the release of OpenAI tokens by Robinhood differs in many ways from traditional RWA (real-world asset) projects, as shown in Table 1:

Table 1 Comparison of OpenAI Token Projects and Traditional RWA Projects

5. Interpretation of Crypto Salad

Robinhood, as a long-established brokerage, has long been involved in the exploration of the coin and digital asset sectors, with its issuance of security tokens (STO) in 2019 as an example. Previously, platforms like Gate and Bybit also attempted to launch U.S. stock tokenization services, and while they introduced some products on the edge of compliance, they did not attract widespread attention.

The strong response to Robinhood's issuance of OpenAI tokens is primarily due to a core difference: Gate, Bybit, and other entities belong to the cryptocurrency sector penetrating into traditional finance, while Robinhood enters the cryptocurrency sector as a traditional financial institution. The impacts of the two on traditional finance are fundamentally different. Most audiences of traditional financial institutions lack experience related to the cryptocurrency sector, and the Robinhood brand itself brings significant market influence.

In addition, the investment targets of this project include technology giants such as OpenAI and SpaceX, which have extensive influence globally. The emergence of the concept of "OpenAI Token" has further attracted the attention of investors.

However, for institutions holding OpenAI stock, if one institution takes tokenization actions, the interests of the other 19 institutions will be immediately harmed. Holding equal shares of stock, some institutions can implement such actions while others cannot follow suit, the core issue is that interests are unilaterally encroached upon, which will make it difficult for subsequent related actions to gain cooperation from other institutions.

For more institutions, if tokenization exits become the norm, more investors will turn their attention to stocks in the tokenization market, which will further exacerbate the volatility of stock prices, transforming the investment market into a space dominated by institutions with stronger speculative attributes. From the perspective of compliance practitioners, this model faces significant challenges. Tokens have a borderless characteristic, while listing rules have clear national boundaries, which will impact various global markets.

Secondly, the rigorous structure of the traditional financial system relies on company law, fund law, securities law, investor protection mechanisms, and exchange rules to maintain itself. However, there are many controversies at the legal level regarding token-related operations, such as the fact that tokens can be infinitely subdivided, while stocks cannot exhibit this characteristic; the registration system and internal filing system for stocks have clear legal bases, and violations can be held accountable through internal mechanisms, whereas the free circulation of tokens on the chain is difficult to regulate and lacks the motivation for proactive supervision, all of which significantly harm the interests of shareholders. Therefore, essentially, while Robinhood's issuance of OpenAI tokens adds an investment target in the Web3 field, it does not generate direct value for the stock market.

Although "stock tokenization" has drawbacks on certain levels and poses new challenges for investors, as an innovative initiative in the Web3 space, its existence is somewhat reasonable. Web3 itself is a field that continuously breaks traditional logic, and the financial innovation exploration reflected by this event has a certain positive significance. However, for practitioners in the traditional financial industry, the impact is quite strong. Therefore, whether for investors or other brokers and companies intending to attempt "stock tokenization", they should treat this event with caution.

This only represents the personal views of the author and does not constitute legal advice or opinions on specific matters.