- Robinhood executives touted crypto as a major opportunity as growth slowed.
- However, obstacles stand in the way of the brokerage firm’s cryptocurrency ambitions.
- Turnover rates and a cautious approach to new product development are worrisome for some employees.
When Robinhood announced layoffs in April, some employees were taken by surprise.
Although the company’s core business, executing trades for small investors, was struggling, there were signs of growth. Just a week ago, Robinhood said: It will buy ZigluUK cryptocurrency trading app, $170 million.
After cuts that affected about 300 people, the takeover has become a rather thorny subject.
One fired Robinhood employee told Insider at the time, “It’s tough to sign this … exactly one week later to make this layoff announcement.” “Basically, it’s hard to hear together.”
However, the reasons for the acquisition became clear when Vlad Tenev, CEO of the popular free brokerage app, and other executives reiterated their plans to make big investments in cryptocurrencies.
Robinhood, famous for its role in fueling the epidemic’s “meme stock” revolution, is “making massive investments” in cryptocurrency trading, Teneb said, just two days after laying off about 10% of the company’s 3,800 employees. said in its quarterly earnings release. “We believe that cryptocurrencies are more than just an asset class,” he added.
The company is betting on crypto to spur growth amid a downturn in its stock trading core business. However, widespread identity crises, regulatory barriers, and a plunging cryptocurrency market may be hindering the execution of fintech’s ambitions.
Insider spoke with industry experts and sources familiar with Robinhood’s crypto work, including an employee who requested anonymity to protect future employment opportunities within the industry. Company insiders said Robinhood’s focus on compliance and regulation, while expected from registered broker-dealers, has led to several months of delays in crypto product launches, leadership rotations and frustration.
“You can hit your head against a wall for too long,” one person familiar with the crypto team told Insider.
This is happening against the backdrop of a plunging market for many crypto players, and some people wonder about the sustainability of business models based on cryptocurrency trading volume.
Robinhood is throwing weight behind cryptocurrencies.
Since 2020, Robinhood has been actively building its crypto team, increasing its staff from less than 10 to around 150 this spring. both have been released keep And unbound wallet — It is a key technology that enables customers to interact with the crypto ecosystem and has introduced various cryptocurrencies to the platform. Teneb said in its earnings call that it has advanced its core crypto infrastructure to make it easier for fintechs to onboard new coins.
Alex Johnson, Director of Fintech Research at Cornerstone Advisors, said Crypto presents a huge opportunity for Robinhood. “What Robinhood found was a way to make money by combining a very good user interface with a volatile investment,” he said.
But this time around, Robinhood won’t have the good macro-economic environment to expect.
“The meme stock boom was very hospitable to them that way,” Johnson said. “But as it dwindles, they see cryptocurrency as the next wave of volatility trading they want to build engagement with, and they know exactly how to monetize their investment with user engagement. That’s their specialty.”
Johnson and industry experts are also concerned that Robinhood is fighting a tough battle with Coinbase, OpenSea, and other markets that offer a wider range of crypto products to their customers.
“It’s strange to say this, but [crypto] “It’s no longer a nascent or emerging market at a retail investor level,” Hugh Tallents, senior partner at consulting firm CG42, told Insider. “It’s well over 18 months.”
Robinhood has also acquired many new customers. Johann Kerbrat, the startup’s chief technology officer (CTO), said: Recently on TechCrunch The fact that 22 million customers interact with Robinhood’s crypto products is a significant number given that the brokerage firm has 22.8 million funding accounts. It said in the latest earnings report.
It remains to be seen, however, whether Robinhood’s crypto offerings will be enough to keep the company out of service or differentiate it from other crypto-only fintechs. And Robinhood, which emerged as “it” fintech at the start of the pandemic, lost some of its luster as the craze for retail trading activity waned.
“Robinhood is stuck in this strange middle ground that isn’t sophisticated enough in terms of features or hip enough from a branding standpoint,” Johnson said, so it can appeal to cutting-edge crypto adopters.
‘The bigger it gets, the slower it moves’
In May 2020, Robinhood hired former Securities and Exchange Commission member Dan Gallagher as Chief Legal and Corporate Affairs Officer. Users flocked to the platform in the early days of the pandemic, and the service went down in March, sparking lawsuits from angry customers. His hiring was seen as a response to those challenges and a sign that Robinhood had matured as a growing financial services startup.
But insiders say Gallagher’s legal team under Robinhood has looked carefully at most of the startup’s cryptocurrency offerings and the team’s work is slowing down for fear of being on the wrong side of regulators. They said top management concerns sometimes delay product launches by months.
Someone versed in the crypto team said the delay was due to the highly regulated state of Robinhood. This person said, “In cryptocurrency, we want to move faster and as regulated broker-dealers they need to move slower.” “The bigger it gets, the slower it moves. The frustration of not being able to move fast enough is common across fintech.”
However, this environment is a curse for cryptocurrency developers, the person added. And that led to some tension with the members of the crypto team. One former employee told Insider, “Our legal team leader is a bit cautious. He’s not a cryptocurrency user. He’s not very interested in cryptocurrencies.”
Robinhood has not appointed a new department head since Christine Brown, Robinhood’s chief operating officer of crypto and de facto chief executive of the trading app’s crypto team, left the company in March. Since then, two other senior executives have also left the team, said someone familiar with the crypto team.
Brown Tweet She left to start her own venture, and on her way out the door, praising Robinhood’s crypto efforts. However, the churn combined with product delays left some general staff uneasy about the department’s prospects.
One employee told Insider, “People on the team are concerned that more experienced product leaders are leaving or being part of layoffs because of a lack of innovation.” They added that part of Robinhood’s C-suite sees “legal fears” as often the biggest obstacle for the crypto team to innovate, stating that they stop launching new products.
staff added. New Coin List Compound, Polygon, Shiba Inu, and Solana were discontinued throughout the quarter. They said the infrastructure for the launch would be ready by the end of the third quarter of 2021, but the team “had to sit for months”.
Referring to crypto yield farming, a process by which users can lend or borrow coins, the employee said, “The economic downturn caused by regulatory fears has also led to a lack of investment in new products such as cryptocurrency yields.” The employee added that the short-term focus on increasing revenue per customer has fueled fears of additional crypto products this year.
Johnson added that Robinhood “is overly sensitive, and that’s what it should be.”
A Robinhood spokesperson said in a statement to Insider: “We are focused on providing our customers with a secure and reliable crypto platform. This sets us apart from many crypto platforms that we may not be accustomed to operating in a regulated environment. do.”
In addition to recent product launches, new cryptocurrency wallets, assets on the platform, and 24/7 phone support for cryptocurrency transactions, Robinhood plans to “integrate with the Lightning Network”, a blockchain payment protocol, the spokesperson said.
However, for the talented people within Robinhood’s crypto team, the susceptibility of intermediary apps to regulatory issues has made joining crypto-based startups uninterrupted, for better or worse, so attractive that they cannot be ignored. The employee said the engineers and designers had left because of a lack of leadership.
A Robinhood spokeswoman said, “Many of our talented employees have continued to embark on their own endeavors or have been hired to lead their own divisions and we see it as a good thing.”
Cryptocurrency is crashing back to Earth
Other potential barriers to Robinhood’s cryptocurrency ambitions are beyond the company’s control. The months following Robinhood’s initial public offering in July have been full of macro risks after macro risks, from inflation to the Ukraine war.
And now, public and private market tech stocks are selling in an astonishingly quick clip that some investors have compared to the collapse of the dot-com bubble, as the Fed’s aggressive tightening policy signals the end of easy funding in the pandemic era. early 2000’s. The Nasdaq is down 27% since January 1. Startup investment in the private equity market is collapsing. And Robinhood’s stock has lost about 70% of its value since its IPO.
Meanwhile, digital currencies, once touted as uncorrelated assets, are increasingly being traded alongside traditional markets. Bitcoin price has fallen more than 36% this year, further confusing individual investors who have already been hurt by the stock price decline.
All of Robinhood’s “backwind behind business is gone,” Talrents said. “They have basically had a market experience where only the cryptocurrency boom and the meme coin boom are rising.
“Honestly, all of that has now turned against them.”
Big crypto companies are feeling the crisis. Shares of Coinbase, which debuted with a surge in value a year ago, have fallen more than 73% this year, while Galaxy Digital has lost about 65% of its value in 2022.
Recent leadership of crypto investment firm Dragonfly Capital told the portfolio company “Close your raises as soon as possible” and “If you are over-employed, reduce fat both in product direction and in your workforce.” Dragonfly executives, who have invested in crypto fintechs such as Paradigm, Crusoe Energy Systems and Compound Labs, also expect strong regulatory demands will drive offshore innovation and the market will not be speculative as retail investors step back.
At least one of the biggest names in cryptocurrency has been shown to be a good investment in Robinhood, which is basically the crypto effort of this startup. In May, FTX founder and CEO Sam Bankman-Fried unveiled a 7.6% stake in Robinhood through investment subsidiary Emergent Fidelity Technologies.
It’s unclear whether Bankman-Fried’s investment spurred Robinhood’s belief in his cryptocurrency ambitions or whether he simply saw an opportunity to grab a large piece of well-known fintech at an affordable price. However, according to Bloomberg data, this stake makes Bankman-Fried the third-largest shareholder in Robinhood.
Through a spokesperson, Bankman-Fried declined to comment further on his investment in Robinhood.
Stocks in brokerage apps “represent attractive investments”, SEC filings disclosing stock purchases saidBankman-Fried added that he had no intention of taking any action “as of now” to change or affect Robinhood’s controls.