Recently, Robinhood, a US internet brokerage giant, announced the launch of stock tokens linked to the equity of top private companies such as OpenAI and SpaceX for European users, once again pushing the cutting-edge issue of real-world asset (RWA) tokenization to the forefront. However, OpenAI quickly issued 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 companys real equity.
This incident not only reveals the profound contradiction between financial innovation and traditional equity management, but also provides a case worth pondering for global regulators and market participants. The Crypto Salad team will combine the relevant exploration content of RWA to deeply analyze the impact and significance of this case.
(Image source: 36 Kr)
1. Background
1. What is Robinhood?
At the most basic level, we need to know what kind of company Robinhood is. Robinhood Markets, Inc. is a financial services company in the United States, headquartered in Menlo Park, California. The company is known for providing stock apps and websites mainly for retail investors. The services provided by Robinhood online are completely free. As a financial technology company, Robinhood is committed to innovating financial products and service models.
Robinhood mainly provides trading of US listed stocks and exchange-traded funds, related options and cryptocurrency trading, as well as cash management. Its positioning is to provide zero-commission trading services for ordinary retail investors in the United States for assets such as stocks, options, ETFs (exchange-traded funds), and cryptocurrencies, and to make profits mainly through interest income from customer cash balances, interest on margin trading, and selling order flows to high-frequency trading institutions.
It has set up a European center in Lithuania and established the Robinhood Europe UAB entity. According to public information, the entity has obtained a Class A financial brokerage license and a crypto asset service provider license issued by the Central Bank of Lithuania, which allows it to provide crypto asset custody, management and trading services in Lithuania and throughout the European Economic Area.
2. Brief description of the incident
The specific incident refers to: Robinhood announced the launch of a stock token product for EU and EEA users at the European Crypto Finance Summit held in Cannes, France, allowing investors to trade more than 200 US stocks and ETFs in the form of tokens around the clock through blockchain technology. Among them, the most concerned is that the unlisted OpenAI and SpaceX stocks are also tokenized, and 5 euros of OpenAI coins and SpaceX coins are airdropped to EU users as rewards to promote the product. Influenced by this news, Robinhoods stock price rose sharply.
However, in the early morning of July 3rd, Beijing time, OpenAI released a statement on its official social media, clearly stating that these OpenAI tokens are not OpenAI’s equity, and the company has not cooperated with Robinhood, nor is it involved in this matter, and does not endorse it. It also emphasized that any transfer of OpenAI’s equity must be approved by the company, and the company has not approved any transfer. Many people will have questions about this news:
What is this OpenAI Token…
Are Robinhood and OpenAIs statements contradicting each other?
What is the operating model and legal basis for Robinhoods issuance of OpenAI tokens and SpaceX tokens?
How does this event differ from traditional RWA programs...
The crypto lawyer team will explain them one by one.
(Image source: 36 Kr)
2. Operation Mode
1. What is the OpenAI Token?
First, let’s take a look at what the so-called “OpenAI Token” is. This “OpenAI Token” is essentially a tokenized contract on the blockchain that is linked to Robinhood’s shares in a special purpose entity (SPV). Robinhood holds shares in an SPV that controls a certain number of OpenAI shares, pegging the price of its token to the value of OpenAI shares in the SPV.
Therefore, the underlying asset of OpenAI tokens is Robinhoods holdings in the SPV company it set up. When users buy tokens, they are not buying actual OpenAI shares, but contracts that follow their prices and are recorded on the blockchain. There are two layers of isolation between token holders and real equity, and the price of OpenAI tokens will change with the changes in the value of OpenAI shares in the SPV.
In other words, if the valuation of OpenAI rises, the value of the shares in the SPV increases accordingly, the value of the SPV itself increases, and the value of the shares of the SPV held by Robinhood increases, then the price of OpenAI tokens may also rise, and vice versa. In simple terms, token holders have the right to obtain corresponding price difference profits based on the value fluctuations of OpenAI-related rights in the SPV, but do not own the actual shares of OpenAI. The above rule is written into the blockchain, and the token becomes the certificate of investors holding this right.
2. Are the statements of both parties contradictory?
As can be seen from the above, Robinhood and OpenAIs statements are not contradictory. OpenAI denies that the OpenAI tokens issued by Robinhood are not OpenAIs equity, and emphasizes that it has not cooperated with Robinhood, has not participated in this matter, and does not endorse it. Any transfer of OpenAIs equity must be approved by OpenAI, and it has not approved any transfer.
Robinhood also admitted that these tokens are not real OpenAI shares, but only provide retail investors with indirect access to the private market through Robinhood’s shares in the SPV. Therefore, both parties recognize that the OpenAI token is not the real equity of OpenAI, but there is a dispute over whether Robinhoods issuance of the token is compliant and reasonable.
Robinhoods OpenAI token issuance operation model is as follows:
Back to the arguments of OpenAI and Robinhood, OpenAI denied that tokens = equity, emphasizing that it has not authorized any equity-related products, which is consistent with the process of tokens ≠ direct equity; Robinhood admitted that tokens are contracts pegged to prices, which is consistent with the design of indirectly pegging value through SPV in the process. The dispute between the two parties is whether this indirect peg 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: through the form of tokens, ordinary investors can trade based on their judgment of the future value of OpenAl. This attempt hits the three major pain points of the current investment market:
First, high-quality assets have low accessibility: top technology companies such as OpenAI and SpaceX have not yet been publicly listed, making it difficult for ordinary investors to share in their growth dividends.
Secondly, the high threshold of traditional private equity and venture capital makes it impossible for ordinary retail investors to enter.
Finally, there is a surge in investor demand for innovative assets: 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 the above context, Robinhood attempts to break the closed nature of the traditional financial system through tokenized transactions and provide retail investors with a new investment channel based on market consensus. Robinhood chose OpenAI because OpenAI is a leading company in the field of artificial intelligence with extremely high market attention and influence.
Robinhood launched the OpenAI token, which can use its brand effect to attract investors attention and participation in transactions. For example, by airdropping OpenAI tokens to EU users as rewards, it can effectively increase user registrations and trading volume, enhance the companys visibility and market influence, and drive the trading of other tokenized stock products.
(Image source: Galoy Research)
4. Regulatory agencies
Robinhoods issuance of OpenAI tokens is currently subject to supervision by the Central Bank of Lithuania and the European Union. Robinhood has obtained a Class A financial brokerage license and an EU crypto asset service provider license issued by the Central Bank of Lithuania, which is its lead regulator in the EU. The Central Bank of Lithuania has launched an investigation into Robinhoods issuance of OpenAI tokens, requiring Robinhood to provide details on the structure of the relevant tokens, marketing, and communication with consumers to assess its legality and compliance.
Robinhoods stock tokens are issued as derivatives under the supervision of the Markets in Financial Instruments Directive II (MiFID II). As trading volume increases, it may also need to be regulated by ESMA (European Securities and Markets Authority), and Robinhood must ensure that relevant requirements such as prospectus disclosure are met. Currently, the token is only open to European citizens and not to American citizens. If it is to enter the US market in the future, it may also be regulated by the SEC (US Securities and Exchange Commission).
Robinhood was able to issue OpenAI tokens in Europe mainly because:
Compared with the strict qualified investor system in the United States, the EU has a relatively lower threshold for retail investors to participate in complex financial product transactions.
Robinhoods stock tokens can be issued as derivatives under the supervision of the Markets in Financial Instruments Directive II (MiFID II), and their underlying assets are held by US licensed institutions, which to a certain extent meets the EUs requirements for financial product compliance.
Robinhood, which uses its app to serve retail investors in the European Union, has transformed its cryptocurrency app in Europe into a more comprehensive investment platform.
III. Benefits and risks of all parties
1. Investor returns and risks
So, what benefits can investors and subscribers get, and what risks will they take?
First, when professional investors subscribe to this OpenAI token, they get an investment opportunity. Robinhood said that these tokens can give retail investors indirect access to private markets and open up investment access. Through its ownership in the special purpose vehicle (SPV), it links the price of the OpenAI token to the value of the OpenAI shares represented by the SPV, so subscribers theoretically have the opportunity to profit from the future valuation growth of OpenAI. If OpenAI develops well and the valuation rises, the price of the token may rise accordingly, and subscribers can earn the difference by selling the token. This is the primary benefit that investors can reap.
When investors buy OpenAI tokens, they are not buying actual OpenAI shares or shares of the SPV, but rather gaining indirect exposure to the price of OpenAI shares in the SPV. From a legal perspective, token holders do not have equity-related rights such as voting rights and information rights, nor do they have actual ownership of OpenAI or the SPV company. Instead, they own a valuation tracker that can earn gains or bear losses based on token price fluctuations.
However, this investment method also has certain risks. Because OpenAI has publicly stated on social networking sites such as Twitter that the token is not OpenAIs equity, and the company has not cooperated with or endorsed Robinhood. This means that subscribers do not own actual shares of OpenAI, and cannot enjoy the real shareholder rights such as voting rights and dividend rights, and their rights cannot be protected like holding real shares. In other words, according to the content released by OpenAI, investors seem to be able to gain benefits only through the increase in the value of OpenAIs equity, and their status is not equivalent to that of shareholders.
Of course, when investors subscribe to this type of token, there will also be value fluctuations and valuation risks. Although the token price is linked to the value of OpenAI shares held by the SPV, it cannot fully and accurately reflect the actual value of OpenAI, and there may be large deviations. Moreover, since OpenAI is an unlisted private company, its valuation itself has a high degree of uncertainty. Once the valuation fluctuates greatly, the token price may fluctuate greatly, and subscribers may face greater losses. Therefore, the crypto lawyer team still recommends that investors need to carefully identify the risks involved, as the risk factor is much higher than that of traditional RWA projects. 2. Project benefits and risks
As for the issuer Robinhood, it may reap considerable profits.
First, the most direct benefit is that after the release of the event, Robinhoods stock price soared by about 10%. This shows that the market recognizes the innovative product it has launched, the companys market value has been improved, and shareholders equity has also increased, while also enhancing the companys influence and visibility in the capital market. At the same time, the company itself can also attract more investors to invest in and subscribe to the companys stocks, thereby achieving the purpose of fundraising.
In addition, the potential benefit that Robinhood will gain is that it can gain market share and expand its customer base through this event. The tokenized product launched by Robinhood is aimed at EU customers, and it lowers the investment threshold and simplifies the complex KYC verification process.
Of course, Robinhood also carries certain risks.
In terms of market risk, the price of OpenAI tokens is linked to the value of OpenAI shares in the SPV. As a private company, OpenAIs valuation is affected by many factors such as technological research and development progress, commercial cooperation results, and industry competition situation, and its volatility and uncertainty are relatively high.
Once OpenAIs valuation is lower than expected or even declines, the value of the shares in the SPV will shrink, which will lead to a drop in token prices. This will not only cause investors to suffer losses, but may also undermine market confidence in Robinhoods business and have a negative impact on its brand reputation and overall business development.
Credit risk should not be ignored either. OpenAI tokens are essentially synthetic derivatives. Investors do not directly hold the underlying assets, but obtain economic exposure to price fluctuations through contracts, which means that the realization of investors rights and interests is highly dependent on Robinhoods ability to perform.
If Robinhood encounters an operational crisis, is unable to fulfill its contractual obligations, or even engages in fraud, it will directly harm the interests of investors, trigger a crisis of confidence in the market, and in turn affect its existing business and future business expansion.
4. Differences between this project and traditional RWA projects
Obviously, Robinhood’s OpenAI token launch event is different from traditional RWA (real world asset) projects in many aspects, as shown in Table 1:
Table 1 Comparison between OpenAI token projects and traditional RWA projects
5. Crypto Salad Interpretation
As a long-established brokerage firm, Robinhood has been involved in the exploration of the cryptocurrency and digital asset fields in its early years. Its Security Token Offering (STO) launched in 2019 is an example. Previously, platforms such as Gate and Bybit have also tried to carry out US stock tokenization business. Although they have launched some products on the edge of compliance, they have not attracted widespread attention.
The reason why Robinhoods issuance of OpenAI tokens has received such a strong response is that the core difference is that Gate, Bybit and other cryptocurrency institutions are infiltrating the traditional financial field, while Robinhood is entering the cryptocurrency circle as a traditional financial institution. The impact of the two on traditional finance is fundamentally different. Most of the audiences of traditional financial institutions lack relevant experience in the cryptocurrency circle, and the Robinhood brand itself has brought significant market influence.
In addition, the projects investment targets include technology giants such as OpenAI and SpaceX. These companies have extensive influence around the world. The emergence of the concept of OpenAI token has further attracted the attention of investors.
However, for institutions holding OpenAI shares, if one institution adopts tokenization operations, the interests of the other 19 institutions will be immediately damaged. Holding the same shares of shares, some institutions can implement such operations while other institutions cannot follow suit. The core problem is that the interests are unilaterally occupied, which will make it difficult for other institutions to cooperate in subsequent related operations.
For more institutions, if tokenized exit becomes a regular mode, more investors will turn their attention to stocks in the tokenized market, which will further increase the volatility of stock prices and make the investment market evolve into a place dominated by institutions and more speculative. From the perspective of compliance practitioners, this model faces huge challenges. Tokens have borderless characteristics, while listing rules have clear border restrictions, which will have an impact on various markets around the world.
Secondly, the rigorous structure of the traditional financial system is jointly maintained by company law, fund law, securities law, investor protection mechanism and exchange rules. However, there are many disputes about token-related operations at the legal level. For example, tokens can be split infinitely, but stocks cannot achieve this feature. The registration system and internal filing system of stocks have clear legal basis, and violations can be held accountable through internal mechanisms. The free circulation of tokens on the chain is difficult to regulate and lacks the motivation for active supervision. All of these also cause great damage to the interests of shareholders. Therefore, in essence, although Robinhood’s issuance of OpenAI tokens has added an investment target to the Web3 field, it has not generated direct value for the stock market.
Although stock tokenization has drawbacks in some aspects and brings new challenges to investors, as an innovative measure in the field of Web3, its existence has certain rationality. Web3 itself is a field that constantly breaks through traditional logic, and the financial innovation exploration reflected by this event has certain positive significance. However, for practitioners in the traditional financial industry, the impact it brings is relatively strong. Therefore, whether it is investors or other securities companies and enterprises that intend to try stock tokenization, they should treat this event with caution.
This article only represents the personal views of the author and does not constitute legal advice or legal opinion on specific matters.
