Diving into Robinhood’s Recent Leap into Tokenized Equities

_{^{Picture by Aidan Hancock / Unsplash}}

Introduction to Context:

On June 2025, Robinhood launched over 200 tokenized U.S. stocks and ETFs for investors in the European Union (EU). Among the assets were tokens for the top private companies: OpenAI and SpaceX. Robinhood’s latest announcement not only gave EU investors access to a new array of opportunities but also offered them 24/5 commission-free trading, fractional ownership, and dividend payments.

At a glance, Robinhood’s move on asset tokenization proves that blockchain can indeed serve practical, large-scale use cases long envisioned by its early believers. Some, like CNBC’s Sigalos, even go to describe it as “its most serious push yet to blend traditional finance with blockchain-based infrastructure.”

That said, the move certainly has not come without backlash from the Web3 community. While the tokens do operate on the blockchain, the infrastructure still remains largely centralized to Robinhood.

Understanding Blockchain-Based Tokenized Assets:

The term ‘tokenization’ refers to the process of turning financial assets into crypto assets. This process involves creating a blockchain-based token that represents the underlying asset and is pegged to its real-world value. In Robinhood’s case, these tokenized assets are issued on a popular Ethereum Layer 2 called Arbitrum. Robinhood also announced that they plan to eventually move the tokenized equities to a custom layer 2 chain based on Arbitrum that is better optimized for tokenized real-world assets.

A Layer 2 chain refers to an off-chain system that is built on top of a primary existing blockchain, in this case the Ethereum blockchain. Having a layer 2 system helps extend a blockchain’s capabilities by offering a more efficient, low-cost, and user-friendly platform.

To better understand layers in a blockchain network, consider this illustration: Ethereum’s main blockchain (Layer 1) is a congested highway that face scalability issue due to high transaction traffic; extensions (Layer 2) are then built on top of the main blockchain that serves as side roads to this congested highway. Thus, layer 2 blockchains reduces the load on Ethereum, producing lower fees and faster transactions.

Robinhood’s equity tokens’ issuer Arbitrum plays that exact role of being the vital side road to the congested Ethereum layer 1 blockchain. Layer 2 blockchains allow for utility and potential enhancement of a blockchain network.

Decentralization Backlash:

The investing app faced criticism for over concerns that they were undermining the decentralization ethos that blockchain is for. With some commentators, like Wall Street Millennial, pointing out that there is nothing decentralized about the tokenization process, regardless of Arbitrum’s role. Robinhood’s ownership of the equities essentially beats the purpose of blockchain. This has led some to question whether Robinhood’s move on blockchain-based tokenization offers any real use cases for the technology that did not already exist.

Conclusion:

Robinhood’s entry into blockchain-based technology certainly marks a significant moment in the evolvement of traditional finance into blockchain-based systems and decentralized finance (DeFi). By offering tokenized equities to new investors outside the U.S., Robinhood shows that blockchain infrastructure can enhance the efficacy and accessibility in capital markets, particularly in regions that previously did not have access. On the technical side, the use of Abritrum’s layer 2 network provides a glimpse into the potential use case of smart contracts in finance.

However, this move also reveals the conflict between innovation and technology ideology. While the tokenized equities do exist on the blockchain, Robinhood still retains ownership of the underlying equities. Which challenges the ideals of the blockchain itself.  As the intersection of blockchain technology and traditional finance evolves, the question remains whether blockchain solutions will facilitate innovation or merely repackage old systems in new code.