Compiled by: Blockchain in Plain Language
Image source: GuerrillaBuzz on Unsplash
On June 30, 2025, leading zero-commission trading platform Robinhood announced that it would leverage Ethereum Layer 2 scaling solution Arbitrum to offer tokenized U.S. stocks and ETFs to European investors. This move marks an important step in the integration of traditional finance and blockchain technology, aligning with Robinhood's mission to democratize financial markets. The company also revealed plans to migrate these tokenized assets to its proprietary Layer 2 blockchain based on Arbitrum in the future. This article will analyze the strategic rationale behind Robinhood's choice of Arbitrum, evaluate the advantages and disadvantages of this decision, and compare it with other tokenization projects in the industry (such as Ondo Finance and Kraken's xStocks).
Why choose Arbitrum? Strategic rationale
Robinhood's choice of Arbitrum as the initial blockchain for tokenized stocks is based on the following strategic and technical considerations:
1. Scalability and cost-effectiveness: Arbitrum's optimistic rollup technology processes transactions outside the Ethereum mainnet, significantly reducing gas fees and increasing transaction throughput. This is crucial for achieving cost-effective, high-volume tokenized stock trading, especially for retail investors.
2. Compatibility with the Ethereum ecosystem: Arbitrum is fully compatible with the Ethereum Virtual Machine (EVM), allowing Robinhood to leverage existing Ethereum tools, smart contracts, and developer expertise. This compatibility simplifies the development process and ensures seamless integration with the broader Ethereum ecosystem.
3. Security and trust: Arbitrum inherits Ethereum's robust security model, providing a reliable foundation for financial applications like tokenized stock trading, which is particularly crucial in scenarios where trust and security are paramount.
4. Alignment with future plans: Robinhood's development of a proprietary Layer 2 blockchain based on Arbitrum indicates its long-term strategic goal of customizing infrastructure. Starting with Arbitrum allows Robinhood to accumulate technical expertise, laying the groundwork for a future transition to a proprietary blockchain.
5. Regulatory and market readiness: Arbitrum's mature position in the blockchain ecosystem, combined with Robinhood's recent acquisition of the EU MiCA (Crypto Asset Markets) license, enables it to offer innovative financial products to European users while meeting regulatory requirements.
Advantages of choosing Arbitrum
Choosing Arbitrum for its tokenized stock platform brings the following advantages to Robinhood:
1. Low transaction costs: Arbitrum's rollup mechanism batches transactions, reducing gas fees to a fraction of Ethereum mainnet costs. This enables retail investors to trade tokenized stocks at low costs, aligning with Robinhood's zero-commission philosophy.
2. High transaction speed: Arbitrum can process thousands of transactions per second, achieving near real-time transaction confirmations. This is crucial for stock trading, as speed enhances user experience and market responsiveness.
3. Scalability supports growth: Arbitrum's high throughput supports a large user base and transaction volume, ensuring the platform does not experience performance bottlenecks as users grow.
4. EVM compatibility: Developers can use familiar Ethereum tools, lowering development time and costs. This may also integrate with DeFi protocols, enhancing liquidity and functionality.
5. Security: Arbitrum relies on the Ethereum mainnet for final settlement, ensuring strong security, which is crucial for tokenized assets representing real-world financial instruments.
6. User-friendly abstraction: As noted by Steven Goldfeder, CEO of Offchain Labs (the developer of Arbitrum), Arbitrum allows Robinhood to abstract blockchain complexity, making tokenized stock trading easy for users unfamiliar with cryptocurrencies.
7. Market momentum: As of March 2023, Arbitrum's total value locked (TVL) was $2.527 billion, making it the second-largest Ethereum Layer 2 solution after Polygon, with a thriving ecosystem providing Robinhood with abundant resources.
Disadvantages of choosing Arbitrum
Despite many advantages, choosing Arbitrum also has potential downsides:
1. Competition with other Layer 2 solutions: Arbitrum faces competition from other Ethereum Layer 2 solutions like Optimism and Polygon. If competitors offer superior features or lower costs, Robinhood's platform may face challenges in user adoption.
2. Dependence on Ethereum: Although Arbitrum benefits from Ethereum's security, it is also subject to risks within the Ethereum ecosystem, such as network congestion or upgrades (like Ethereum's Pectra upgrade). Any disruption may indirectly affect Arbitrum's performance.
3. Risks of migrating to a proprietary blockchain: Robinhood plans to migrate tokenized stocks to its proprietary Layer 2 blockchain based on Arbitrum, which introduces technical and operational risks. If the migration does not go smoothly, it may cause delays, compatibility issues, or disruptions in user experience.
4. Regulatory uncertainty: Although the EU's MiCA framework provides clarity, tokenized securities involve complex regulatory compliance. Any regulatory changes could impact Arbitrum's applicability or require Robinhood to make costly adjustments to the platform.
5. Volatility of Arbitrum tokens: The price of ARB tokens fluctuated significantly (down 85% from a peak of $2.39 on January 2, 2024), which may affect market perceptions of Arbitrum's stability, thus impacting investor confidence in Robinhood's tokenized stock platform.
Comparison with other tokenization projects
Robinhood's tokenized stock program is part of the trend of tokenizing real-world assets (RWA). Below, we compare Robinhood's initiatives with other platforms like Ondo Finance and Kraken's xStocks.
Ondo Finance's tokenization efforts
Overview: Ondo Finance is a leader in RWA tokenization, focusing on U.S. Treasury bonds, money market funds, and other fixed-income products. Its flagship product OUSG (tokenized U.S. Treasuries) is issued on EVM-compatible chains like Ethereum and Polygon, with plans to expand to Solana.
Comparison:
1. Blockchain choice: Ondo primarily uses Ethereum and Polygon and is integrating Solana. Unlike Robinhood's focus on stock tokenization on Arbitrum, Ondo's multi-chain strategy diversifies risk, but cross-chain bridging may increase complexity for user experience.
2. Asset focus: Ondo targets fixed-income assets, appealing to institutions and DeFi investors seeking stable returns. Robinhood focuses on tokenized U.S. stocks and ETFs, targeting retail investors and providing exposure to stocks of companies like Tesla, Apple, and private companies like OpenAI and SpaceX.
3. Accessibility: Ondo's products are integrated into DeFi protocols, requiring users to have a crypto wallet and blockchain knowledge. Robinhood abstracts blockchain complexity, making tokenized stocks more accessible to non-crypto users, which is a significant advantage for mass adoption.
4. Regulatory approach: Ondo operates in the less regulated DeFi space, while Robinhood's MiCA license ensures compliance with EU regulatory requirements, potentially bringing greater trust but also requiring adherence to stricter regulations.
5. Scalability and cost: Both Arbitrum and Polygon offer low-cost, high-throughput environments. However, Arbitrum's TVL ($2.527 billion) is lower than Polygon's ($3.8 billion), indicating stronger ecosystem liquidity for the latter, which may benefit Robinhood's trading volume.
Advantages of Ondo: The multi-chain strategy reduces the risk of reliance on a single blockchain, fixed-income assets appeal to risk-averse investors, and integration with DeFi protocols enhances liquidity and yield opportunities.
Disadvantages of Ondo: The complexity of DeFi integration may hinder retail investors, and multi-chain reliance may lead to fragmentation or interoperability challenges.
Kraken's xStocks (based on Solana)
Overview: Kraken is a major cryptocurrency exchange developing an xStocks platform based on the Solana blockchain for tokenized U.S. stocks aimed at European investors. This is similar to Robinhood's plans but leverages Solana's fast, low-cost architecture.
Comparison:
1. Blockchain choice: Solana's transaction speed can reach 65,000 TPS, with costs lower than Arbitrum (thousands of transactions per second). However, Solana's history of network outages (like in February 2022) raises reliability concerns, whereas Arbitrum's performance is more stable.
2. Asset focus: Like Robinhood, Kraken focuses on tokenized U.S. stocks, addressing pain points such as trading time limitations and geographic restrictions. Both target retail investors, but Kraken's integration with crypto exchanges may attract crypto-native users more.
3. Accessibility: Kraken's xStocks, like Robinhood, aims to simplify tokenized stock trading. However, Robinhood's well-known brand and user-friendly interface may have an advantage in attracting non-crypto users.
4. Regulatory approach: Both platforms operate under the EU regulatory framework, but Robinhood's MiCA license provides a clearer path for compliance, while Kraken's regulatory efforts are still ongoing.
5. Market impact: Solana's recent institutional adoption (like BlackRock's BUIDL fund) has enhanced its credibility, but Arbitrum's deep integration with Ethereum may provide stronger DeFi connectivity for future expansion.
Advantages of Kraken: Solana's ultra-low fees and high throughput are well-suited for high-frequency trading, and its growing institutional support enhances its appeal.
Disadvantages of Kraken: Reliability issues with Solana's network and less mature EVM compatibility compared to Arbitrum may limit its flexibility in complex financial applications.
Efforts in other industries
1. BlackRock's BUIDL fund (based on Solana): BlackRock's tokenized money market fund targets institutional investors, offering stable returns but does not involve retail stock trading. Its success highlights Solana's appeal to institutions but lacks Robinhood's retail focus.
2. JPMorgan's Onyx platform: JPMorgan's blockchain platform focuses on institutional tokenization (like bonds, repurchase agreements) rather than retail stocks. Its private blockchain approach contrasts with Robinhood's public blockchain strategy, limiting accessibility but enhancing control.
3. Gemini's tokenization strategy for stocks: Gemini offers exposure to Michael Saylor's Strategy stock tokenization for EU investors, similar to Robinhood's private equity tokens (like OpenAI, SpaceX). However, Gemini's asset range is narrower, and Ethereum-based costs may be higher than Arbitrum.
Industry trends and impacts
The RWA tokenization market is expected to reach $18.9 trillion to $23.4 trillion by 2033, benefiting from advantages such as 24/7 trading, faster settlements, and higher accessibility. Robinhood's platform based on Arbitrum positions it as a leader in retail tokenization, competing with crypto-native companies like Kraken and DeFi platforms like Ondo. Choosing Arbitrum aligns with the industry's trend towards scalable, cost-effective blockchains, but competition from Solana and Polygon indicates the need for continued innovation.
Robinhood stands out by abstracting blockchain complexity, making tokenized stocks more appealing to mainstream investors. However, its success depends on overcoming regulatory obstacles, managing the transition to a proprietary blockchain, and remaining competitive with rivals like Kraken and Ondo in terms of fees and performance.
Conclusion
Robinhood's choice of Arbitrum as its tokenized stock platform is a strategic move that leverages Arbitrum's scalability, low cost, and Ethereum compatibility to provide a user-friendly, secure, and efficient trading experience. Despite the decision's significant advantages, it also faces challenges such as competition, dependence on Ethereum, and migration risks. Compared to Ondo's multi-chain strategy in DeFi and Kraken's Solana-based xStocks, Robinhood's platform excels in accessibility and regulatory compliance but must contend with competitors' potential advantages in reliability and cost. With the growth of the RWA tokenization market, Robinhood's Arbitrum-based initiatives position it as a pioneer in bridging traditional finance and blockchain, with the potential to reshape the global retail investment landscape.
