Tracy Alloway (2:03)

Bloomberg

Joe Weisenthal (2:04)

Audio Studios Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (2:24)

And I'm Tracy Alloway.

Joe Weisenthal (2:25)

Tracy, I think I've mentioned it before, but an idea that I've had for podcasts in general. Maybe this one one day. Other podcasts I want to do everything in two parts. So yes, yeah, interview the guest. Because sometimes it's like all of the questions I want to ask are only after I'VE talked to a guest for an hour and have some better understanding of the situation. So when I interview the guest, think about it for a few days, let the listeners listen to it and have their questions. And then it's like, okay, you know what, we've thought about it for a few days, come back also our listeners want to know about this and then have the second part of the conversation just like a follow up. I want to like formula. I want to do that more.

Tracy Alloway (3:02)

I think it's a good idea. It's also just a flywheel of content.

Joe Weisenthal (3:04)

It's a flywheel of content.

Tracy Alloway (3:05)

It'll be never ending that way.

Joe Weisenthal (3:07)

Yeah, I think that's good.

Tracy Alloway (3:08)

Job security.

Joe Weisenthal (3:09)

Anyway, we did an episode last year that was great, but it also provoked a lot of questions. I'll just like jump right into it. So we did an episode last year with Vlad Tenev, the co founder and CEO of Robinhood and that was about the company's tokenization efforts. So basically his ability to create instruments that would allow users to actually trade shares. Not shares, I guess, but you know, quasi equity or equity linked instruments in private companies, like you know, an OpenAI or something like that. And then after that came out a bunch of people, including the company, there's

Tracy Alloway (3:42)

a lot of reaction.

Joe Weisenthal (3:43)

Yeah, they're like, what the heck we did? Since when did these private companies, they're like, since when the heck did like we authorize our equity to be traded like this? There are all kinds of stuff. I didn't even like really think about that aspect of the time. So it's like I wanted to know more.

Tracy Alloway (3:55)

I think there's a lot to talk about here. So I mean it does feel like the, I guess the trajectory of history right now is marching towards tokenizing everything and just allowing markets in everything in

Joe Weisenthal (4:06)

everything in every form.

Tracy Alloway (4:07)

From like kind of quasi derivatives to one off event bets. Like that just feels like the trend at the moment. But at the same time there are so many interesting questions that this actually raises, not least of which is the safety aspect and how much of our lives are just going to be watching lines going up or down and making bets on them.

Joe Weisenthal (4:28)

Absolutely right. You know, like with the prediction markets and you know something I've been thinking about with prediction markets is you can replicate equity through that. Right? Because you could just have like prediction markets on will Tesla go up 1% today will go up 2%.

Tracy Alloway (4:40)

You could just recreate stock go up or down.

Joe Weisenthal (4:42)

Yeah, you can recreate all of these instruments in all these different formats. So it definitely Feels like a jump ball, especially with a very sort of liberal regulatory environment. Anyway, I'm very excited to say we are going to get a chance to do the second half of that conversation that came out last July. So we are rejoined once again by Vlad Tenev, co founder and CEO of Robinhood. So, Vlad, thanks for coming back on Outlawed.

Vlad Tenev (5:02)

I'm happy to be here again. And I think from the guest perspective, I'd also like this if there was an opportunity to replace any of my answers from part one with better answers. Now that I know the questions can't

Joe Weisenthal (5:15)

replace them, that's gonna. The first one is gonna live on forever.

Vlad Tenev (5:17)

But it's a very interviewer friendly format that you'. Created.

Joe Weisenthal (5:22)

That's right, of course we did. Well, let's talk about that because like we did that episode where you talked about these tokenization efforts and I was, I don't know why I didn't even think. Like other companies whose private shares are being tokenized, are they cool with this? But apparently they weren't. What's going on with that? What happened with that? Because it does seem weird to be able to offer instruments of privately traded companies when the company is themselves. Like, just to be clear, this is not us.

Vlad Tenev (5:46)

I think there was various degrees of disavowal. I think a lot of these companies are very concerned about their reputation computations and if they don't understand something, they don't have time to dig into it. They'll just say, we had nothing to do with this. Which I think is fair. I think you talk to these AI companies and they, they all kind of say the same thing, which is, yeah, we'd love our company to allow retail investors exposure. Right. And, and we think that would be better for the world. Everyone generally agrees with this. But when you get down to the details of what that entails, and it is a new thing, not a lot of companies are doing it. Nobody really wants to be the first. And no one wants to mess with the status quo. And from their perspective, they want to focus on running their business, increasing their revenues. And this is sort of ancillary, but for us, it is our business. Our business is all about helping the retail investor, making sure they have all the advantages that institutions have. And so it's very, very important. We've continued on this journey. Obviously the OpenAI and SpaceX stock token giveaways in Europe were kind of step one, but it's evolved. Like we're continuing to pursue that overseas, but of course we want to find a US solution for us Customers as well. And actually this week we are taking public Robinhood Ventures Fund one RVI on the nyse which is a closed end fund. So you can think of it as a venture capital firm that we're taking public. We raise capital from retail investors and some institutional as well. And we use that capital to invest in private companies which we've already invested in in quite a few.

Tracy Alloway (7:30)

These are things that traditionally would be limited to accredited investors, but it's not

Vlad Tenev (7:34)

accredited vehicle and also no carry. So actually one of the things we've been hearing is from a perspective of an LP that invests in venture capital firms and has to give up that performance fee to the manager, this is a disruptive vehicle. And for all of the Robinhood Ventures portfolio companies, and these are companies like Databricks, Aura Revolut. I think I have to go through all of them because I don't want to pick out a particular boom Hypersonic.

Joe Weisenthal (8:03)

Oh yeah, we had their CEO on.

Vlad Tenev (8:05)

Yeah, Merkor and Stripe, which we've signed and not closed. And I'm probably forgetting some. But yeah, these are all companies that are excited to have Robinhood and retail be a part of the picture. And they filmed videos explaining why they chose to be part of this. So there are people that want to be the first. And of course this is a different product than tokenization of an individual name. And so it's like a little bit more palatable to most of these companies. But I think it ends up in the same place. I think there's going to be a gradual acclimatization to retail access to these companies. And you know, Robinhood is going to be leading the way across all aspects of this journey. But you know, our approach to it has, has evolved a little bit. You know, now we're at the point where we're actually surprised how many companies are interested in it and are engaging and view it as a differentiator. So I think at least for a bit, we're going to be less aggressive than we've been in the past and just get into these companies and make sure they want to be part of what we're doing willingly and openly.

Tracy Alloway (9:11)

I definitely have a lot of questions on the venture fund in particular and you promised to answer all of our geekiest questions about like the technical structure of how it works. But before we go any further, I have one conceptual question which is when you think about the difference between, I guess, investing, trading and gambling, how would you differentiate those three activities? Because I think a lot of the tension that arises from something like Tokenizing stocks is this idea that like, oh, you know, when you buy a stock, you're buying equity. The clues in the name, right? You're buying equity in the company and that's supposed to come with certain rights. It's supposed to lead to a virtuous circle of, you know, the investors putting capital in the company and the company talking back to its investors. And so I think if we just step back for a second and talk about how you see the differences between those three activities, that would be really helpful.

Vlad Tenev (10:02)

Yeah, I think that the difference between investing and trading is really one of velocity. I think the mindset of someone. And by the way, it's not always different people, it could also be different activities within one person. So in fact we have a lot of customers who have multiple accounts that they have for different purposes. So investing to me is the mental model is I'm buying something and I never intend to sell it right.

Tracy Alloway (10:33)

Longer term.

Vlad Tenev (10:33)

So it's sort of like accumulating assets and you intend to, to have them only grow. And of course maybe you'll sell it if you actually need the money. But the intent is always, I'm holding on to this and I'm building like a monotonically increasing portfolio. Trading is, I'm going to move in and out because I see an opportunity and that opportunity might not exist in one day or three months. But there's like a very particular thesis that I have that's time bound and systematic. And I think gambling is like mostly emotional driven. Like maybe I really like this team, right. And they're my, my local team. So I'll just, you know, put, put some for entertainment purpose behind it.

Joe Weisenthal (11:23)

On tokenization, specifically, just to go back to this question, you mentioned that you're through the regulatory environment or you're able to move a little bit more aggressively in Europe than the U.S. but setting aside Europe or U.S. if someone buys something that on the Robinhood platform is called an OpenAI token.

Vlad Tenev (11:40)

Yeah.

Joe Weisenthal (11:40)

What are they getting? Do you have equity that has been like backing it? Is it a sort of swap where the only thing backing it is your promise to like redeem the token at some price? Like what is the token?

Vlad Tenev (11:52)

Yeah, so all of the tokens that we have offered in Europe, including the SpaceX and OpenAI giveaways, so those haven't been unlocked for trading. It's basically just we gave our customers a gift that they hold in their accounts and that's because we're actually private markets even in Europe for tokenization. We're sort of like working through. Since we're the first to do this, at least that I'm aware of, we're working with the regulators to make sure that when we unlock those for trading, the product is safe and is sort of like answers all the questions and meets all of the requirements for making sure customers are clear on how it works. So the intent is for that to happen later this year. So we're working on it. But as of now, private stock tokens aren't tradable, they're just gifts. And all stock tokens are backed by underlying equity or like equity equivalent position in, for example, OpenAI doesn't have traditional equity because.

Joe Weisenthal (12:55)

Okay, but there is. So just to be clear, someone acquired some equity at some point in a VC round or whatever it is, and when someone buys an OpenAI token, that link exists to an actual asset that

Vlad Tenev (13:09)

someone has, with the caveat that Nobody's buying the OpenAI token through Robinhood currently. It's just been gifted.

Joe Weisenthal (13:16)

Okay, so someone holds those tokens, they've been gifted, but those are.

Tracy Alloway (13:20)

The token holder doesn't have the equity. It's in the, like, special purpose vehicle. I assume.

Vlad Tenev (13:25)

So, yeah. Technically the way this works is it's kind of similar to a stablecoin.

Joe Weisenthal (13:31)

Yeah.

Vlad Tenev (13:31)

So you have your bag of traditional assets that are governed by traditional rules and legal covenants and whatnot here, and then you mint and burn tokens against that. But yeah, as of now in Europe, it's a derivative product and that's also subject to change. You can think of this as kind of the paperwork around the technology. The technology is the same, but we have been hearing from customers that, hey, they're a little bit concerned, you know, with traditional stocks in the event of bankruptcy of Robinhood or something. It's very clear what happens.

Joe Weisenthal (14:04)

Yeah.

Vlad Tenev (14:05)

And so in V1, I think a lot of those questions were ambiguous, but since then we've continued working and we're going to have a V2 and eventually a phase three of this offering where we believe we'll have a path to actually addressing all those concerns. So now you're at the point where if you buy something that's tokenized, maybe it's a little clunky and it is slightly worse as a product than if you have the traditional equity. Right. If you have access to that. Some people don't have access to it, so it's actually much better for them. But I think you're going to get to the point within the next year where it's. It's superior in all practical ways. And I think that's where things really start to get interesting.

Tracy Alloway (14:48)

And just on the ventures fund. I know you said it was a closed end fund, but is that like a 40 act thing or a PD40 act?

Vlad Tenev (14:55)

Okay.

Tracy Alloway (14:55)

Yeah.

Joe Weisenthal (15:11)

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Tracy Alloway (16:11)

I find financial engineering interesting and it certainly gives us a lot to talk about. But on the other hand, it seems like so much work. Would it not just be simpler to try to lobby for the accredited investor rules to actually be changed? Like how are you making the decisions to. We're going to create all these new products which I assume are a lot of work for you guys. Take a lot of discussion with the regulators versus just lobbying for these old rules to actually get overhauled.

Vlad Tenev (16:38)

Yeah, I think we're doing that as well. I think the accredited investor rule needs to go. Frankly, it doesn't make any sense. But I don't think that answers all of the problems that people have with private market investing. The other problem is just liquidity. Like I don't even myself, right. Who has access to these things? I don't want to have my capital locked up for 10 years or possibly more for these companies to go public. And some of them might never go public. Right. So there's a liquidity. There's also just access. And I mean, Robinhood, part of what we're doing here is we're out there hustling, getting into these deals. Because I'm in Silicon Valley, our team is there, unlike most of these financial companies that are here in New York. So we happen to kind of be in the epicenter where the deals are getting done, where the companies are based, the no carry, obviously, and the accreditation. You know, if we could solve that through other ways, that will become interesting. But Chairman Atkins of the SEC actually specifically called out closed end funds as the preferred vehicle for having access to privates. So, you know, we're, we're doing our part working with the regulators to try to open this up. I think they agree that it's a problem. And you know, I don't think that it's going to be the end state necessarily. I think this thing will evolve. But we want to serve customers and work with regulators at all stages of it. So. And you know, you do this once, the fact that it's hard is also kind of attractive because it makes it so that or unique. Like we figure it out, we have qualities that we can bring to bear that not all of our competitors can. For example, you really need to have both sides. You need retail to actually be on the platform and to be serving customers who are interested in these products. You also need to get the supply. And I think Robinhood is somewhat unique in being able to actually do both of these things simultaneously. And then we figure it out once and then we turn the crank. So, you know, you notice we named it RVI Robinhood Fund 1. We do anticipate there will be other funds. We already have lots of ideas of unique products we can offer. So it's really just the first step.

Tracy Alloway (18:52)

So you mentioned being in Silicon Valley and being able to source these deals. And this is the other thing I wanted to ask you because getting into a hot private tech company at the moment seems incredibly competitive. And Joe and I, we go out and we talk to a lot of venture capital funds and they always give us the same pitch, which is, well, we're different. We build long term relationships with our investments. How is Robinhood actually competing in that space? And what I guess differentiates you from a sort of classic vc?

Vlad Tenev (19:21)

Yeah, I mean a big one is we can say that there's no carry on these funds. And what that means is it's just the more we believe a more investor friendly vehicle, right. Typical venture capital firm will charge the management fee. There's also a carry on top, which means every dollar past a hurdle rate, 20% of that goes back to the fund manager. So it's more investor friendly product. The other thing is, I think a lot of these companies are interested in retail. And no other venture capital firm can say, hey, actually, RLP is de facto not technically LPs, but the people investing in your company and who will get the underlying exposure through this fund are normal people, mom and pop. And I think that's something that nobody else is offering. So that's a unique differentiator. And some people don't like that, to be fair, but other people really, really like it. And for those people, and I think in the future, less people will not like it because of the uncertainty, and that'll just make it more attractive. So the. The headwinds are receding. Headwinds, right. It's never going to be as difficult as it is right now to get companies interested in it. And I think it'll actually get substantially easier. We kind of went through this with IPO access, actually. So we have the largest retail platform for access to IPOs, where we function as a selling group member. And, you know, we first rolled this out slightly before our ipo. The intent was Robinhood's IPO would be a big retail offering. And I think at the time it was the largest for its size. It was north of 20% retail allocation. The other companies that allowed us access to their IPOs that year, I mean, they were early adopters. They saw the vision. We also just had to, like, scratch and claw and bang on a lot of doors and ask a lot of favors, right? There was some skepticism. Then the IPO market shut in 2022. Then we. When we reopened, an interesting thing happened. Now everyone's coming to us and asking us about retail strategy. Pretty much all of the IPO names are coming to us to talk about retail. And. And so we saw that shift in just a few years. I think this will be even faster for privates.

Joe Weisenthal (21:39)

I want to ask. So, okay, you mentioned the advantages is okay, there's no carry. There's things like that. That all sounds nice. I foresee a potential conflict of interest that I'd like you to talk to me about. In a traditional VC fund, it's pretty obvious. Like, the goal is to make a lot of money, right? You make investments and you want them to go up. It strikes me, and especially when hearing the names of the companies in rvi, it's like, they're very sexy names, right? They're the kind of household names to the extent that that exists within private companies and boom and databricks, et cetera. It seems to me like the traditional VC fund, like you're going to optimize for making the most money. The Best returns, including names that no one has ever heard of. Why should I not think that Robinhood's portfolio has been optimized for retail awareness? Not for the best returns, but for the collection of companies that will spark the most triggers in people's heads to get them invested because they've heard of them and they're sexy and not necessarily the best options out there in terms of investing.

Vlad Tenev (22:38)

Well, I mean, first of all, we are incented to make this firm perform well. Right. We. Everyone will see it. It's going to be highly public. The returns will just be out there. And, you know, we have a fiduciary obligation. We've got a great fund manager that we've hired, and we're underwriting all of these deals extremely rigorously. I think the biggest worry that you have with things like this is actually adverse selection. Right. Are you just going to get into the deals of the companies that need the money and are desperate for it? This is what you run into with, like, new things. Typically, it's like, when am I going to start looking at.

Joe Weisenthal (23:18)

This is like, what I think. Because I've got, like, I mentioned this on another episode. Someone was like, joe, someone is selling some anthropic shares with this. Interesting. I'm not investing in companies I cover in the private market, so I'm not going to do it. But, like, I always have the thought, like, you know, if someone's offering to sell it to me, they must really want to.

Tracy Alloway (23:33)

When, like, when they're asking us, when they're asking.

Joe Weisenthal (23:35)

When they're, like, offering the equity to Joe, like, that's like a bad sign. I. Not necessarily a bad sign, but that adverse selection of, like, by the time it's getting allocated to retail, like, a bunch of people have decided to part with it.

Vlad Tenev (23:47)

We have to flip that on its head. And actually, all of the deals that we've gotten into have been competitive deals. Like, we've had to work for these allocations. You know, I've had. I have a lot of friends that are venture capitalists. Yeah. And I think some of them, like, I've been talking about this for a while, this general idea of we want to get in and actually start competing with you guys, you know, and they never took me seriously. But then we started, you know, getting allocations and deals that they wanted allocations in. And I've started getting calls and they've been telling me, hey, this Robinhood Ventures real thing, I have to contend with you now. So I think we're. We're very proud of the companies that we've gotten thus far.

Joe Weisenthal (24:25)

I think you made the point that one of the drawbacks is liquidity, which is always going to be a phenomenon in private markets. Another drawback to this is that the investor doesn't know anything. There's no 10Qs, there's no earnings calls or anything like that. And you know, you don't know, okay, you own some tiny slice of a private company, whether via a token or whether via rvi, you don't really know what the share count is. You don't know like how much have they like allocated to employees this quarter? Because they're under no obligation to think that. Are we heading towards a world, do you think, in which the trade off is like, okay, investors can get access to almost everything via some instrument, but are we heading to a world where the flip side is and they're going to know a lot less about the companies that they've invested in?

Vlad Tenev (25:11)

I don't think so. I don't worry about that. And in fact, one of the innovations that we've, we're putting out there with the launch of this offering is private company detail pages. So you'll actually be able to search for the private companies themselves in Robinhood and see all of the information.

Joe Weisenthal (25:28)

But they're not going to like, they're like revenues like earning like all the traditional, like, they're not, it's publicly available

Vlad Tenev (25:34)

information, what they've chosen to share, but it's all in one place. And you get a lot of useful stuff in there. You see the valuation history. So you can see like, you know, the chart of companies like databricks, for example. Yeah, and I think there's just a lot of information out there. I mean, if you think about investing in a private company today versus a retail investor investing in a public company, say in the 80s, I'd venture to say there's more information. You have like app store analytics data for consumer products. They're out there. A lot of these late stage privates are doing public company like disclosures and audits on a regular basis. Because this isn't, you know, these aren't $100 million companies. These are, you know, some of them are in the hundreds of billions of valuations, tens of billions. Probably 15 years ago. These would have gone public a while ago. So I mean, we've generally started with household names, with some exceptions that are already established at the frontiers of the industries. And these are like the companies that would be closest to being public. So if you think about, you know, public company IPO access candidate Robinhood Ventures. Robinhood Ventures is filling. It's like gradually extending backward. Actually, the thing I'm most excited about, if I had to point to something, it's eventually getting to the earliest possible stages. Like, I think retail should be funding seed rounds. Like the first capital in a company should have retail participation. And I think we hear from the customers. One of the concerns is, well, these companies are fairly late stage. How do I get exposure to something that's earlier so I can get in on the ground floor? And I think that's something we're excited to dig into and work on.

Tracy Alloway (27:25)

Would that be like a GoFundMe competitor or something? Because there are some Kickstarter. Kickstarter.

Vlad Tenev (27:30)

That's what I'm thinking.

Tracy Alloway (27:30)

I'm not gonfal.

Vlad Tenev (27:31)

Well, the difference is with those products, you don't actually get any ownership. You're giving, you're making a donation.

Tracy Alloway (27:37)

Sometimes you get early products, I guess, but that's about it.

Vlad Tenev (27:39)

Yeah, but what they want is ownership. They want to invest in something when it's at a valuation of say, 10 million. And if it gets to 10 billion, that's a.

Joe Weisenthal (27:48)

And then they'll learn that 99% of those companies go to zero. But they have to learn that lesson for themselves.

Vlad Tenev (27:52)

It sounds like. Well, you know, that's where we come in. Right. And we think that we can, like, we can figure out what, what the right deals are. And what we intend to do is offer great companies to customers.

Tracy Alloway (28:05)

Well, on this note, and just going back to the Ventures fund as well, I mean, one other issue I foresee is that you see a lot of flow and information in the market and you can imagine some of your competitors potentially thinking that, you know, maybe some of that flow would inform how the fund is actually manage. I mean, in some respects, like you're starting to get a little bit investment banky where you have this huge flow business that you can glean market insights from. And then you also have managed funds. How are you sort of hiving off those two activities or how are you thinking about how, like the data and the flow data that you see, how will that actually inform management?

Vlad Tenev (28:44)

Yeah, I mean, certainly one of the advantages is we know what retail investors are interested in. Yeah. And by and large, what we try to do is give people things they're interested in. You know, if they're not interested in it, it's not going to be a successful product. So I think that's a big differentiator as we think about this product in terms of how the fund is managed. It has a separate board with great board members. Separate, you know, everything. Auditing, compliance. So it's like a company within Robinhood, the management company.

Tracy Alloway (29:15)

Yeah. So there's a Chinese wall, effectively.

Vlad Tenev (29:18)

Well, you know, it.

Tracy Alloway (29:20)

I don't know.

Vlad Tenev (29:20)

You get into legal questions that. I don't even know if that word is appropriate.

Tracy Alloway (29:24)

I was going to say anymore. I don't think we're supposed to use that anymore. So I'm sorry.

Vlad Tenev (29:27)

But yeah, of course, you can imagine everything that we do is highly regulated and scrutinized by armies of professionals. So, yeah, that's the one thing we're so established at this point that we have to play everything by the books.

Joe Weisenthal (29:59)

Can we talk about prediction markets for a little bit? I have a lot. We have a lot of questions about this. You have a relationship with Kelsey, so people can access Kelsey's markets through the Robinhood platform. When trying to understand who is going to make money in prediction markets, which is more valuable, the liquidity pool and activity that emerged on Kelshi or the distribution that you have through Robinhood and like, which is the harder thing to replicate here?

Vlad Tenev (30:31)

Yeah, I mean, it's fundamentally two different businesses. Right. You can think of Kalshi in this case playing a role similar to an exchange in the equities and options markets.

Joe Weisenthal (30:43)

Yeah.

Vlad Tenev (30:43)

So it's like institutional business, predominantly. Although in CFTC land, it's interesting that the exchanges also have the ability to go direct to consumer, which you don't see in. In traditional equities. And it's a business where you're matching orders. So you're working with market makers, you're working with professional traders. You have retail as well. And to win there, you have to have great technology, low latency, you have to be good about listing products, maintaining market integrity. And it's like a complex business. Right. And that's why the businesses that have gotten scale and traditional assets are worth, you know, tens of billions of dollars, sometimes more. We have a slightly different business model. The way to think about Robinhood is we're a financial super app. We should be the best place to get keep your money and your assets and or building products to make sure more and more of your financial life. Ideally all of it is on Robinhood. So if you want to trade prediction markets, options, futures, you're an active trader, we should get 100% of your active trading activity and we compete for that. We also want your retirement account, your kids custodial accounts, your trusts, all of your mutual funds, eventually Your spending activity through our card products, your banking through checking and savings. So it's really about how do we own the entire financial relationship? And we vertically integrate where it makes sense, where we think we have a unique advantage, but it's not like a focused exchange business. Although I should say we entered into an agreement, we've acquired a stake in Rothera, which is formerly LedgerX, which is a DCM. So we do intend to actually vertically integrate the prediction market side of the business.

Tracy Alloway (32:38)

So one of the things we often hear in defense of prediction markets is this idea that, like. Well, actually, if you're an institutional investor, this could be a way to hedge some exposure that you have. So I don't know, if you're an airline and a huge part of your expense account is oil, maybe you would take a position on what's happening in Iran or something like that. Yeah, I know that.

Vlad Tenev (32:58)

Or if you're a retail investor.

Tracy Alloway (32:59)

Well, this was going to be my next question. I know that you see mostly how retail investors are behaving, but do you see any evidence that people are like, thinking through it that systemically versus just like placing a bet on whatever particular contract kind of catches their eye?

Vlad Tenev (33:14)

Yeah, I mean, I think there's lots of stories out there that have been covered about people being incredibly scientific about all of their trading and prediction markets. Gives you a wide surface area to do that under. I mean, you have obviously the sports contracts, which everyone likes to talk about, but economics. You've got a contract on alien disclosure, which I really. That's one of my favorite ones. Last I checked, 22% chance that there will be alien disclosure by the US government this year and rising, I think

Tracy Alloway (33:46)

rising recently after all the.

Vlad Tenev (33:47)

Well, there's been some, some, some chatter about it for sure. But yeah, I mean, I think that, like, there's people out there that are studying these things in detail. They're building models and what you find is with any nascent market, before you get like full institutional participation, there's more opportunities. And I think now we're before the point where these opportunities are arbitraged by, by the big players.

Joe Weisenthal (34:13)

I asked this question recently to CFTC Chairman Michael Selig, and I think we kind of got a no answer, if I'm being honest. So maybe I'll try it with you. As you understand it today, would there be any limitation legally on Robinhood setting up a live stream of a giant roulette wheel and having people make futures event contracts on whether it's red or black?

Vlad Tenev (34:38)

Yeah, I mean, currently Our policy has been to have them be backed by real events. So we don't want to do like derivative, we haven't done any derivative prediction markets and there's, there's different forms of that as well. Like you have like prediction markets and then you have a prediction market on how this prediction market is, is going to go.

Joe Weisenthal (35:01)

So like for example, Polymarket had a market where it was the coin toss at the super bowl and you could bet on heads or tails and it was trading at 50% before the toss, then it went to 100%.

Tracy Alloway (35:11)

Very much like gambling. Right.

Joe Weisenthal (35:13)

Well like why even bother having the super bowl at that point? If people are willing to like bet money on a coin toss, why not just have a continuous coin. Why just forget the super bowl, just have a coin tossing machine and let people trade on it. Is there like, is there anything actually like stopping you from doing that?

Vlad Tenev (35:29)

I'm not sure. Yeah, I mean I'd have to look into that. We don't offer any of those contracts. I personally, you know, I'm a former trader, probably wouldn't trade those. I think the purposes for people trading them is, is probably more entertainment. But yeah, that's not to say that all prediction markets are like that. And, and I'm not against people innovating because that's how we discover things. Right. Like generally speaking I'm in favor of people trying new things and seeing what happens as long as nobody is getting hurt and you know, market integrity and, and investor protection, all of that is

Joe Weisenthal (36:05)

being upheld just on the relationship with Kelshi. Like you want to be this one stop shop for all money. Presumably they're, you know, Polymarket is going to build out its US version. I don't know exactly what state is that there's by other competitors. Is that going to be an exclusive thing or will you, is the goal so that a user of Robinhood can trade predictions on any platform?

Vlad Tenev (36:27)

Yeah. So even currently our relationship we connect to multiple prediction market backend exchanges. Kalshi obviously is the larger because they have the vibrant sports contracts and they've been moving fast. We also have Forecast X which is the prediction markets subsidiary of Interactive Brokers. And as I mentioned before, we've got Roth era, which is, which is ours and also we're continuing to talk to these guys. Everyone's interested in, you know, having access to Robinhood customers, sending our orders there. I think the way this plays out is similar to our other asset classes where we prioritize for where the customer is going to get the best execution and also contract variety and we'll send our orders there. And I think where this ends up is you'll have lots and lots of destinations, you'll have smart order routing and the contracts I think will be increasingly fungible. So at some point there's going to be a way to cross books and actually offload risk and you'll have the election contract here and election contract there. And there will be a layer where you can actually like even though there's technically on different exchanges, exchange one for the other.

Tracy Alloway (37:44)

Say more about this because this was actually going to be my next question. But when you think about what makes a good prediction market, the complaint that we often hear is well, there's just not enough size, there's not enough liquidity in the contract. So I imagine a big component of who you're partnering with is just like the largest platform that's out there, like akalshi. But can you describe like actually what you think makes a good prediction market for investors? Like what are the pros and cons of each one?

Vlad Tenev (38:12)

Yeah, I mean I think volume and liquidity and contract selection are the big things. Contract selection customers want selection, they want variety, they want to be able to explore. And both traders value this because they can trade more things. But also the casual use case of just looking at the markets and figuring out what the odds of events are. Liquidity obviously improves things. It improves the prices and also improves the odds of getting filled if you bring in an order with size and costs. Transaction costs. Yeah, yeah, I mean I, I think those are basically the, the main things.

Joe Weisenthal (38:51)

It's very easy with prediction markets to replicate things that we don't think of as event contracts. So you can like recreate a line that looks like equity or futures on a prediction market. You could, you know, you could have and I'm curious like, and I think

Vlad Tenev (39:08)

some of those products are very useful.

Joe Weisenthal (39:09)

Yeah, that's exactly what I was guessing. Do you see era a point where, particularly from the perspective of a trader where essentially the exchange itself can be disrupted or sort of Napster ized or something like that because they have the instruments to get the price exposure that they want without having to interact with the traditional equity layer?

Vlad Tenev (39:33)

I think it's different. You know, I think that obviously equity exposure is extremely low cost right now.

Joe Weisenthal (39:43)

Yeah.

Vlad Tenev (39:44)

In large part due to our efforts in the space. But if you want to buy an equity, I mean it's just never been cheaper.

Joe Weisenthal (39:50)

Right, right.

Vlad Tenev (39:51)

Our all in monetization on equities business is like two basis points. So I Don't really think it's competitive with that product. The other thing is you have leverage which again Robinhood, for our active traders, great margin rates. I mean the, the, I think the most competitive margin rates in the industry, at least that I'm aware of.

Joe Weisenthal (40:13)

Will you provide leverage to prediction market traders?

Vlad Tenev (40:15)

Right now leverage is not permissible in prediction markets, but that's something a lot of people are talking about and something you're worried about. Well, it's, I guess we're working on it to some degree which is just driving towards clarity. But since that would have to be an exchange product, the exchanges would actually have to have to get clarity. But I think it's coming. Look, I mean I don't think you can, you can imagine the market still in its infancy. So you'll, you'll get all of these things introduced. And when you look at the options markets for traders, the leverage is actually a very attractive element of it. Being able to, you know, put, put in a relatively small amount of money and get large exposure. Yeah. So I think there's a lot that prediction markets, there's a lot, there's a lot of growth and a lot of evolution that's needed before it becomes like a full institutional grade asset. But it's underway and we should assume that it's going to happen and it's going to happen quickly. And I think there's all sorts of. We view this and we have early insight because we're actually, I think one of the only places where you can have all these assets in one place. We don't see any cannibalization. Traders love it. And I think we see an opportunity in combining all of these assets into one cohesive picture. For example, you can imagine you have a particular equity in that equity detail page. Say it's a Tesla or another company. You see prediction markets related to that company and then that gives you a comprehensive view and you can trade very specific things. We think there's a big opportunity in earnings as well. A lot of people have thoughts on how companies are going to do with earnings. They have models. Stock price is an imperfect proxy for that. So the EPS and revenue contracts directly would be, would be very attractive. And right now that's in a little bit of a limbo because it meets the criteria of a securities based swap which would be an SEC product. Right. So harmonization is needed to clear the path for listing products like that, which we're working with the regulators and collaborating to try to figure out. But yeah, it's exciting from like a Market nerd standpoint, because we're in the early innings and you can kind of see the future of how it's going to evolve. It's going to be a much bigger asset class, much more institutional. It's evolved similar. I think it'll evolve similarly but more quickly to other asset classes that have come in in the past.

Tracy Alloway (42:43)

Just going back to tokenized stocks for a second. Does consent matter at all? That sounded more like Epsteinish than I intended it to sound like. But like if an OpenAI comes out and says, like, we have some reservations about this, we have some concerns, would that give you pause for providing a token in that particular company? And then, you know, your role in the market is expanding as you start these new venture funds and things like that. You might not want to annoy a bunch of private companies at this stage. So how are you balancing those considerations?

Vlad Tenev (43:17)

Yeah, these are all considerations that we're thinking through. Obviously right now the policy that we have is we'd like to get the consent of the companies. We want them to be on board. I think that if you think about it from now, here's the nuance. Let's say you're an accredited, high net worth individual. There are ways to get exposure to these companies without the company consenting. Right. They just don't care. But legally, you could become LP in an SPV that exists. There's these ways where companies have already lost control of who their shareholder base is. And not to mention when they go public, you've completely lost control of your shareholder base. So I think since it's early, obviously our approach is we want to make sure everything is. We don't want anyone saying they don't want Robinhood Ventures invested in their company and throwing ice water over it. Not to say that that's going to be the policy forever, but that's kind of the, that that's the approach we're. We're taking now.

Joe Weisenthal (44:22)

Do you want to just drop your new card on the table?

Vlad Tenev (44:25)

I know, My God.

Joe Weisenthal (44:26)

So you have. We could just. I don't. We don't need to do a big, like, ad for like, all the great people can look that up. But you have this new platinum card.

Tracy Alloway (44:33)

It's really bad opsec if he's like dropping his credit card.

Joe Weisenthal (44:36)

No, we want to hear how it sounds.

Vlad Tenev (44:37)

It's the most secure credit card on the market. Your number is not on it.

Tracy Alloway (44:41)

Oh, all right.

Joe Weisenthal (44:42)

Oh, that is legit.

Vlad Tenev (44:44)

Would you like to hold it?

Tracy Alloway (44:45)

I would, I. Yes. So this is nice. This is really nice.

Vlad Tenev (44:50)

So Heaviest card on the market. Beats out the Robin Hood gold.

Joe Weisenthal (44:53)

Yeah. Wait. Actually drop the gold card. Now let's hear the difference of.

Vlad Tenev (44:57)

Very different.

Joe Weisenthal (44:58)

No one watched that puny gold.

Tracy Alloway (45:00)

Disappointing.

Joe Weisenthal (45:01)

Here's the platinum drop. Let me drop the platinum one.

Vlad Tenev (45:03)

So let me tell you. I can tell you the thesis behind this card if it makes sense. We want this to be like the James Bond card.

Joe Weisenthal (45:12)

Yeah. No, it feels if you.

Vlad Tenev (45:13)

If you are James Bond, this is the card for you. If James Bond, Sean Connery himself were to have a credit card, he would have this card. And I think we tried to evoke that feeling not just in the design of the card, but if you look at the website. Yeah, we have a scuba diver. We have like, these nice planes. So, yeah, we. We really tried to.

Joe Weisenthal (45:33)

If I paid, if I pulled that out, my friends won't make fun of me.

Tracy Alloway (45:36)

No, I will, Jeff.

Joe Weisenthal (45:37)

You trace your.

Vlad Tenev (45:38)

If you pull that out.

Tracy Alloway (45:39)

Actually, I really like it.

Vlad Tenev (45:40)

Well, actually, it's got 5% dining credit. That's probably. That's. Nobody offers that with a high limit. So it's actually intended for you to treat your friends.

Joe Weisenthal (45:49)

Okay.

Vlad Tenev (45:50)

And take it out.

Joe Weisenthal (45:50)

They're not going to complain. They're not going to make fun of me when I'm paying for dinner. And.

Vlad Tenev (45:54)

And what we found was with the gold card, a lot of people. A lot of people don't really use physical cards anymore. It's Apple pay. But the moments when you use your physical card, it's less of a payment instrument. It's more like, let me show you my watch. Right. It's. It's a. It's a fashion accessory. It's a luxury good. And I don't know if the credit card industry is really. Has really evolved. I think the same degree iPhone, you know, you have the orange iPhones now. It's. It's a fashion accessory. Less of a utilitarian Good. And I think physical cards, the same way it used to be that people wanted physical cards that were as light as possible because it served a utilitarian purpose. You want to keep it in your wallet. You want your wallet to be light so that you're not. Not hunched over. Now I think it's a little bit different. It's an extension of your personality.

Tracy Alloway (46:40)

So I'm a big fan of physicality in everyday products. Like remember the. The cube, the tungsten cube?

Vlad Tenev (46:47)

Yeah. Oh, yeah.

Tracy Alloway (46:48)

Like, that was a direct response to like, the ephemerality. Ephemeralness.

Joe Weisenthal (46:53)

Crypto of crypto.

Tracy Alloway (46:54)

Right. Like you want something that's tangible and like, feels heavy in your hand.

Vlad Tenev (46:57)

I keep telling Deepak that a tungsten card for crypto people would be cool.

Joe Weisenthal (47:02)

Yeah, get on that.

Tracy Alloway (47:03)

Oh, you should do that.

Vlad Tenev (47:05)

Not a bad idea.

Joe Weisenthal (47:05)

Blood. 10 of. Thank you so much for coming back on Odla.

Vlad Tenev (47:08)

Great chatting with you. Yeah, always a pleasure. Thank you, guys.

Joe Weisenthal (47:23)

Tracy, I love catching up with Vlad. I mean, Robin Hood is a company that is, like, so far ahead of the curve in basically everything that's happened with, like, the retailization of every market, the complete breaking down of every distinction between what's a stock, what's a future, what's a token, et cetera. Like, they're right in the middle of all of it.

Tracy Alloway (47:44)

Absolutely. And also, there's a reflexivity here. Right. Because the bigger Robinhood gets, the more its offerings kind of matter for the way the market itself behaves. So I think it's definitely a worthwhile discussion. I gotta say, though, like, the financialization of everything, I do find a little bit dystopian. I remember, like, I went to Macau once and never been there. I was really looking forward to it because I was thinking, you know, the Las Vegas of the East. But a lot of the gambling I found, like, pretty depressing because some of it was as basic as, like, let's roll the dice, and if it's a high number, you win, and if it's a low number, you lose. And taking, like, those kind of very simplistic binary bets.

Joe Weisenthal (48:25)

Yeah.

Tracy Alloway (48:25)

And I feel like. I feel like a lot of that is sort of creeping into the financial system.

Joe Weisenthal (48:30)

Yeah.

Tracy Alloway (48:31)

I mean, in our daily lives, people

Joe Weisenthal (48:32)

bet on the coin flip of the Super Bowl. Yeah, I know. Why even have the super bowl at that point, if people are. They're just betting on a coin flip? The super bowl is kind of an irrelevancy if people are inclined to bet on the coin flip. I don't know if, like, people will bet on a coin flip, but it's not, like, that much. It's basically the same thing as, like, betting on red or black, which people do. Which people do online, which is really depressing. Actually, the most depressing thing I've ever seen on the gambling front was I was in Iceland, and I think they have this.

Tracy Alloway (49:01)

I do not think of Iceland as, like, a hub of gambling, but.

Vlad Tenev (49:03)

Go on.

Joe Weisenthal (49:04)

Like, I was looking for stuff to watch on TV in my hotel room, and they had a stream or they had a video of, like, this, like, video casino where they had, like, an attractive woman dealer dealing cards, and then people could phone in their bets. So like recreate kind of this casino ish thing. But like it seems like that's where we're going. And then the other thing too is that as I mentioned, like whether it's like technological arbitrage or regulatory arbitrage, every type of bet can be turned into done with any type of instrument. You can replicate stock and options with futures. You can do sports betting in the form of prediction markets. You can then take prediction markets and we've already seen this, you can take prediction markets and bundle them into ETFs. And so you could have buy an ETF that is a series of long Democrat in the Senate markets, et cetera. And so everything can be wrapped in every other sort of wrapper and everything is just sort of seemingly once you find the right wrapper, kind of allowed within their current sort of like regulatory framework. And honestly, even if it's not allowed, you do it offshore with crypto, etc. And so there's almost no way to sort of stop this, stop this progression.

Tracy Alloway (50:16)

But the other thing I've been thinking of is, you know, we used to hear of markets described as, you know, there were upsides to capitalism, right? Like you're supposed to be efficiently allocating money.

Joe Weisenthal (50:27)

I still think there's some pretty good

Tracy Alloway (50:28)

upside, of course, of course. But like that used to be the thing, right? And now you see more and more money that's kind of being diverted away from like, well, this is just going to fund a company. Well, we're just going to bet on the line in the company going up or you know, some other real world outcome or whatever. Here's what it is. We were talking about this the other day, but like, it actually feels like if you think about the 1980s, you had that greed is good. Yeah, right, right. And even that was controversial. And now you Fast forward to 2026 and it feels like morality doesn't even like necessarily enter into it. Everyone is just like so resigned to this idea that like, well, of course people are going to try to make money. Of course we're going to just bet on random things to try to win.

Joe Weisenthal (51:11)

Everyone just accepts that, like securing the bag is, is the other thing. The one other thing I do worry about is like, I think American capital markets are good in part because we really do have excellent disclosure and you know, from time to time you hear about like an accounting scandal. But they're rare. Like they're a lot rarer. I think anyone who looks in any other market around the world would find them way more frequent and market manipulation would find it way more frequent in other markets outside the US because we have this very good regulatory regime and expectations. And the SEC mostly does its job very well, and it's going to increasingly sort of like be taken over by tradable instruments for which investors really do not have the same level of information at all. And the expectation that an investor would, like, be able to know the share count of a thing they're buying, or be able to know the earnings or the margins of a thing they're buying. Like, that's going away and we might regret, like, having so much traded without as much transparency at some point down the line.

Tracy Alloway (52:11)

No, absolutely. Actually, this is a good reminder. I wanted to call back to two episodes. So on that note, we did that really good episode about private credit in particular, kind of turning the economy into a black hole. I think that's really good. You know, obviously it's focused on credit, but you can extrapolate to more and more companies just going private in general. And then secondly, Vlad mentioned he's really into aliens. We got to get Paul Krugman back

Joe Weisenthal (52:35)

on to talk about aliens.

Tracy Alloway (52:37)

To talk about aliens.

Joe Weisenthal (52:38)

Let's do it.

Tracy Alloway (52:38)

But in the meantime, there is an existing episode that people should check out anyway. Shall we leave it there?

Joe Weisenthal (52:43)

Let's leave it there.

Tracy Alloway (52:43)

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

Joe Weisenthal (52:49)

And I'm Joe Weisenthal. You can follow me at the Stalwart, follow our guest Vlad Tenev at Vlad Tenev, follow our producers Carmen Rodriguez at CarmenArman, Dash O' Bennett at DashBot, and Kale Brooks at Kale Brooks. And for more Odd Lots content, go to bloomberg.comoddlots for the daily newsletter and all of our episodes and you can chat about all of these topics 24. 7 in our Discord Discord GG oddlots

Tracy Alloway (53:10)

and if you enjoy Odd Lots, if you want us to bring back Vlad on a quarterly basis to follow up on our previous questions, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes at absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

Joe Weisenthal (54:03)

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