Robinhood’s 'comeback' and big plans for 2025 with co-founder and CEO Vlad Tenev | Equity Podcast

Robinhood's Comeback and Growth

• Robin Hood was named Yahoo Finance's "Comeback Stock of the Year," and the company is happy about this recognition, feeling that the vibe around Robin Hood has shifted from negative to positive after a period of growth and challenges (1m2s).
• The company's story began with everyone rooting for them as a young company, but then they were treated like an incumbent, and the vibe became negative, especially after the whole industry dropped commissions to zero in 2018 and 2019 (1m9s).
• During the COVID-19 pandemic, the vibe around Robin Hood was strange, with the company growing rapidly but people being unhappy, and the company has since hit its low and is now experiencing a positive trend (1m32s).
• The company's market cap has grown significantly, from $1.3 billion in 2018 or 2019 to $32 billion as of the conversation, although it was even higher on Monday before being affected by J Pal's comments (1m58s).
• One in 10 Americans now have a Robin Hood account, which is a significant milestone, and the company has a quarter of a percent of the total retail assets in the US, although this still means they have a long way to go (2m26s).
• The company's assets are growing 40% plus year-over-year, which is a much faster rate than the 2-3% growth of larger companies like Schwab and Fidelity, which have 10 trillion assets (2m57s).
• Robin Hood has around 2,000 to 3,000 employees, depending on how part-time employees are counted, which is much smaller than larger companies like Schwab, which has tens of thousands of employees (3m10s).

Leadership and Expansion into New Services

• The transition from co-CEO to CEO in 2020 was a smooth one, with the co-founder wanting to focus on designing and building things rather than dealing with the public company aspects, and the transition has been going well (3m32s).
• Robinhood's co-founder and former Chief Creative Officer stepped back to the board earlier this year and started another company in the aerospace and space exploration industry (3m55s).
• Robinhood has expanded into various financial services, including management, credit cards, and other areas, with the goal of becoming a big financial services company that does everything (4m13s).

Prediction Markets and Event Contracts

• The company is exploring prediction markets, which became a headline leading up to the election, and sees it as a significant opportunity due to its newsworthiness, correlation to market performance, and usefulness as a hedge (4m31s).
• Prediction markets can provide a clear picture of the odds of a candidate winning an election, making them a useful tool for news and information (5m30s).
• Robinhood launched prediction markets for the election despite initial doubts due to a lawsuit with the CFTC, and the team managed to ship the product in about 2.5 weeks (6m11s).
• The company worked with Forecast as their DCM provider, a technical requirement for their FCM (Futures Commission Merchant) business, and did not consider buying KI due to regulatory limitations (6m41s).
• Robinhood is exploring a move into sports through event contracts, but with a focus on regulated, federally regulated event contracts rather than traditional sports betting (7m21s).
• Event contracts do not permit sports outcomes, and the company's focus is on regulated federally regulated event contracts (7m30s).
• A new CFTC commissioner is expected, and there is interest in sports entering the fully regulated realm, with event contracts potentially being a big thing, as seen with the presidential election market which had over half a billion contracts traded in about a week (7m42s).
• The number one request after the election was for more contracts, and sports would be a huge and perennial option, with other possibilities including economic contracts, such as fed hike or fed drop prediction markets (8m0s).
• Economic contracts are a natural fit for Robinhood, as they convey interesting information at the intersection of news and financial markets (8m26s).
• Event contracts can be seen as an active trader asset or a passive experience, delivering news in real-time, and can be applied to various categories, such as entertainment events, sports, and politics (9m1s).
• The idea of event contracts is similar to sections of a newspaper, providing real-time information, and could be the digital equivalent of a newspaper (9m31s).

Copy Trading and Vlad Tenev's AI Research Lab

• A smaller opportunity is copy trading, which has been in the regulatory crosshairs, with the main issue being that it takes the broker out of the realm of self-directed and into providing advice (9m57s).
• Robinhood wants to be a self-directed platform, but some customers are interested in copying other traders, and it's difficult to square this with not providing financial advice (10m28s).
• A startup, Dub, is doing copy trading, and it's interesting to note that a co-founder of Robinhood was involved in the funding of this startup earlier this year (11m1s).
• The CEO of Robinhood does personally invest in things from time to time, but not very much due to being busy (11m17s).
• Vlad Tenev invests in various things from time to time, but tends to be conflicted out of many investment opportunities, and has recently started an AI research lab focused on solving difficult math problems, where he serves as chairman of the board, and they have raised $75 million from SEOA (11m28s).
• The AI research lab, called Harmonic, aims to build AI models that can reason and solve math problems without hallucinating, using math as a universal language to figure things out (12m34s).
• The idea behind Harmonic was born out of Tenev's interest in physics and math, and his pursuit of a math PhD at UCLA before dropping out to enter the business world (12m38s).
• Tenev believes that building AI models that can do math well is equivalent to building AI models that can reason well, and that they should be able to solve various problems and determine when they cannot solve a problem (13m9s).
• Harmonic's approach to solving math problems is different from existing models like GP4, and is based on ideas behind Alpha Zero, a model that excelled at playing chess (13m50s).
• Tenev is optimistic about Harmonic's potential, but acknowledges that some experts, like a UCLA professor, believe that AI will never be able to figure out complex questions of the universe on its own (14m6s).
• Tenev agrees that humans will likely continue to direct research directions in math and science, but believes that the job of a mathematician will fundamentally change with the advent of AI (14m36s).
• Tenev's friends and colleagues in academia have expressed concerns that AI might replace their work, but one of them noted that the job of a mathematician has already changed significantly over the centuries, from solving complicated equations to more complex tasks (14m48s).
• The development of AI and automation may change job descriptions, but humans will still be needed to direct research and make decisions, similar to how mathematicians adapted to calculators and Babbage machines (15m10s).
• Robinhood may work with Harmonic in the future, but for now, Harmonic is focused on building the best math model, and opportunities for collaboration may arise when productizing and commercializing their work (15m47s).
• There are similarities between math and software, and advancements in math could lead to the development of verifiably correct programs and applications, which is crucial in safety-critical domains like financial services (16m9s).
• Formal verification, which Harmonic is focusing on, could be applied to areas like blockchain, smart contracts, and traditional trading systems, where small errors can lead to significant losses (16m48s).
• The overlap between Robinhood and Harmonic is currently small, but as both companies grow, there may be opportunities for collaboration and overlap (17m29s).

Puerto Rico and Crypto Regulation

• Puerto Rico is being promoted as an innovation hub with a vibrant ecosystem, highly skilled and bilingual talent, and competitive tax incentives (17m52s).
• Regarding crypto, there are significant changes happening in Washington, including new appointments and a proposed bill to move control over the industry from the SEC to the CFTC (18m32s).
• The current regulatory environment is seen as an improvement over the status quo, which was characterized by regulation through enforcement and broadscale (18m54s).
• The US crypto industry is expected to benefit from sensible regulation, with the government and industry working together to make the US number one in crypto worldwide, which is preferable to the current lack of clear rules (19m1s).
• Europe has been ahead of the US in crypto regulation, with established rules for conducting initial coin offerings (ICOs), listing tokens, and crypto derivatives, and it is expected that the US will catch up within the next year (19m21s).
• Clear regulations will be beneficial for both the industry and consumers, as crypto is an asset that customers want to trade, and it has the potential to change the underlying infrastructure of the financial system in a positive way (19m56s).
• The evolution of financial technology has led to the digitization of financial systems, and blockchain is the next step in this evolution, allowing for decentralized and interoperable financial infrastructure (20m14s).
• The use of blockchain technology can make financial transactions more efficient and secure, allowing for the easy transfer of assets between different platforms and reducing the need for intermediaries such as transfer agents and clearing houses (20m46s).
• Currently, transferring assets between brokers can be difficult and time-consuming, but blockchain technology has the potential to simplify this process and make it more secure (21m10s).
• The safety of money is independent of whether it is in crypto form or not, and self-custody of non-crypto dollars is not possible unless it is in the form of cash, making it vulnerable to being cut off by banks (22m1s).
• Self-custody of crypto assets appeals to people because it allows them to have control over their assets and reduces the risk of being cut off by banks or other intermediaries (22m34s).
• The concept of individual liberty is closely tied to the idea that people have control over their assets, and the internet and blockchain play a significant role in this, allowing individuals to access and manage their assets without fear of them being taken away (22m41s).
• Not everyone values decentralization, and some people prefer to have their assets held by a centralized provider, such as a broker or exchange, which can offer a sense of security and protection (22m50s).
• Companies that hold customer assets have a strong incentive to safeguard them, as losing customer funds would be a brand-destructive event, and it is in their best interest to do right by their customers (23m29s).

Political Donations and Acquisitions

• Robinhood, along with other companies like Open AI and Meta, donated to Donald Trump's inauguration fund, with Robinhood's donation being a show of support for the incoming administration's stated policies, particularly with regards to the crypto industry (23m40s).
• The donation was also seen as a way for Robinhood to stand out and make a statement, as the company likes to move with conviction and take a strong stance on issues that matter to them (25m7s).
• The Trump administration's policies, particularly with regards to crypto regulation, were seen as a positive development by the markets, with futures and equities markets reacting positively to the news (24m41s).
• Robinhood acquired TradePMR, a custodian used by financial advisers to manage client accounts and portfolios, for $300 million, as part of the company's efforts to expand its offerings and build on its existing infrastructure (25m23s).
• The deal was the result of Robinhood's interest in the wealth management industry and its desire to expand its services to financial advisers and their clients, with TradePMR servicing over 350 financial advisory firms (25m46s).

Expansion into New Business Areas

• Robinhood is considering expanding its business into new areas, including 401K administration, employee stock plans, and serving advisors, with the goal of helping individuals and businesses manage their finances more effectively (26m10s).
• The company already has a great IRA product that has been growing quickly, and serving advisors is seen as a natural business expansion point (26m32s).
• Serving advisors is considered the most interesting opportunity, as customers want someone to help manage their financial lives holistically, including portfolio allocation, insurance needs, budgeting, and wealth management (27m10s).
• Existing solutions do not do this well, and Robinhood sees an opportunity to provide a more comprehensive service (27m36s).
• An RIA (Registered Investment Advisor) custody business has three levels of compounding, which can help grow assets over time, whereas Robinhood's self-directed business only has two (27m40s).
• The three levels of compounding are customers making more money over time, getting more customers, and having more advisors who can help customers accumulate assets (27m55s).
• Robinhood is excited about the potential for growth in the RIA custody business, particularly with the use of technology to update holdings and balances in real-time (28m56s).
• The company believes that there is a lot of "low-hanging fruit" in the market, and that it does not need to do much to make a significant dent in the market (29m2s).

AI Integration and Future of Financial Advice

• Robinhood plans to adopt AI in three stages: first, using AI to help employees scale up their work internally, then augmenting existing products, and finally having fully autonomous financial agents that can do the job of certified financial professionals (29m11s).
• The company believes that AI can help advisors and entrepreneurs in the same way, and that many advisors are excited about the potential of AI to help them manage their businesses (29m37s).
• AI technology will continue to improve, but humans will remain in charge and direct it, with the potential for fewer financial planners needed due to scaling, but still having thousands of customers (29m53s).

Employee Offers and Acquisitions

• The employees of a company, likely TradePMR, were offered "exploding employment offers" with a two-day deadline to accept their contracts, which included a salary, equity, and a change from hourly to salaried pay (30m31s).
• The framing of the article made it sound like the employees had no choice, but in reality, it's a competitive market and employees have choices, with Robinhood being an amazing employer with a great culture (31m5s).
• Almost all employees from the acquired company, TradePMR, received offers to join Robinhood, with only two people not getting offers, which was not emphasized in the article (31m49s).
• Robinhood takes it seriously when people decide to join the company, especially during mergers or acquisitions, and has been able to bring in talented people and have them do extraordinary things (31m55s).
• The company has done around 10 acquisitions, mostly small ones, with an average acquisition amount of $118 million, and all of them have been in the UK and US (32m55s).
• Robinhood plans to expand to India, Asia, and elsewhere, with the acquisition of Bitstamp, which is licensed in many markets, providing an opportunity for growth (33m14s).
• Robinhood has a global footprint, serving a broader market, with around 30 licenses worldwide, and is headquartered in Europe but has a global presence (33m24s).
• The company's philosophy is to build a hub that can be used by customers worldwide, rather than acquiring multiple cores and integrating them, which can lead to costly integration projects and slow down product velocity (33m33s).

Product Expansion and Global Growth

• Robinhood is expanding its products and services, including the launch of crypto on its desktop platform, Robin Hood Legend, and direct exchange integration, which will allow customers to access the exchange order book directly (35m21s).
• The company is also focusing on active traders, who are described as technology enthusiasts who want the best tools, low latency, and customization options, and are launching new products and features to cater to this market (36m15s).
• Robinhood aims to be the number one platform for active traders, with a suite of asset classes and capabilities, including 24-hour market offerings, index options, and futures (36m43s).
• The company is committed to providing innovative products and pricing, and is continuing to iterate and ship new features every week (35m15s).
• Robinhood has recently launched several new products, including Futures, index options, and Robin Hood Legend, which have been well-received by customers (35m2s).
• The company is also planning to expand into new markets, including Singapore, which was announced to go live next year (34m7s).

Active Traders and Market Competition

• Robinhood has the lowest margin rates in the industry, which is beneficial for active traders, especially with the recent decrease in FED rates (36m57s).
• The company is currently number two in the space, winning on mobile but catching up on desktop, with Schwab being the number one entity (37m14s).
• The goal is to become number one by the end of the decade across all assets offered (37m26s).
• The typical Robinhood customer is in their 30s, with an average age of 30-35, which is younger than typical customers of incumbent companies (37m37s).
• Robinhood aims to be relevant for the next generation and ensure its products work for younger people, not just millennials (37m56s).
• Active traders are a niche market, but they are at the forefront of technology and innovation in financial services, and catering to them will benefit all customers (38m20s).
• The company emphasizes the importance of safety mechanisms, such as suitability checks, to ensure that customers are not exposed to products that are beyond their risk tolerance (38m47s).
• Robinhood's principle is to make products available to retail customers that are also available to institutional investors and sophisticated individuals, within relevant rules and regulations (39m4s).
• The company believes that active trading is a real need in a large market and aims to compete and win in this space (39m22s).