Robinhood

Robinhood-style gamification democratizes investing but hides real financial danger

Blankfein sees fintech trading apps as genuinely good at expanding access to investing, but worries that confetti and 'attaboy' UI patterns mask downside risk for people who can't afford to lose. The same feature that hooks needed investors also misleads vulnerable ones.

“I think those things that kind of democratize investing and make it very, very accessible to people is in its own terms a very good thing. So people should be aware of assets they could buy and make it easier to do do some and maybe, you know, receive advertising promotion so that they focus on it more than they would. Maybe they would never focus on it but for those companies. You know, at the same time, if you make it too much like a video game, you could mask the fact that there's danger associated with it and you can lose, and that people who don't have a lot of money can lose more than they can afford to lose.”

Fantasy sports for the stock market

Riffing on an idea from a prior guest, Shaan pitches a monthly fantasy-trading game where everyone gets the same budget, allocates to stocks, and competes — generating millions of extremely valuable leads you can upsell into real trading or sell to Robinhood.

“And then you basically create some kind of fantasy sports game around the stock market. And I think if you did that, you could definitely like fantasy sports. I think there's like 50 million+ players of it. I think that you could create a fantasy version of trading that may not have 50 million, but I think you can get into the millions of people who are participating in this. And that would be very valuable. Those leads would be very valuable because you could upsell them into actually trading because they're going to have seen their fantasy portfolio crush it and they're going to think, oh my God, I should go play the real game.”

Steal thisBuild a fun, free fantasy-trading game to cheaply acquire millions of leads, then upsell them into real brokerage accounts.

$3M of Bitcoin became ~$100M

Sam recounts an investor whose ~$3M all-in Bitcoin position (bought near $3K) grew to roughly $100M when Bitcoin peaked around $63-65K in December.

“Well, last December, when it hit $65,000 or $63,000, his $3 million turned into around $100 million, and he sold about half of it.”

Media companies buying media: the new acquisition playbook

Shaan frames a pattern: non-media companies acquiring media/community brands to own an audience. Examples include Robinhood buying Snacks, Stripe buying IndieHackers, HubSpot buying The Hustle, and Spotify buying The Ringer.

“Robinhood bought, uh, Snacks, which was like a kind of a media company. So Robinhood, this exchange, not a media company, buys a media company. Stripe bought IndieHackers, right? Stripe, not a media company, bought IndieHackers, this community of kind of makers. HubSpot buying The Hustle. And there's a few other ones that are actually somewhat prominent. Spotify buying, let's say, The Ringer or things like that.”

Steal thisIf you run a software company, consider buying an audience instead of building one from scratch.

How Calacanis got into Robinhood: a bar pitch with Elon present

Calacanis recounts meeting Robinhood's founders in a Palo Alto dive bar while having a drink with Elon Musk. Vlad's pitch was to get commitment-phobic, debt-laden millennials to trade stocks for free at a time when retail investors had vanished since 2008, and the absurdity of the pitch is exactly why Jason invested.

“He said, "Well, we're going to make it free." I said, "So your idea is to go after a group of people who are on their parents' Netflix accounts to save money, get them to trade stocks, and your business model is free?" He's like, "Yep." I was like, "I'm in." So I invested.”

Why $1 of Robinhood options can move a stock massively

Jack explains the GameStop mechanics: retail traders buy cheap weekly options that expire Friday, which lets a tiny amount of capital move the stock's needle far more than the dollar amount, because they don't care about losing it all.

“They're buying options that expire on Friday, which means that you can essentially move the needle of the stock just by putting in like $1. You can move it massively because you're basically doing a game of roulette. You're like, hey, yeah, I know I'll lose all my money, but I have a small chance of winning.”

Shaan goes all-in: $25K/day into Bitcoin to hit 25% of net worth

Rather than dollar-cost averaging, Shaan bought the daily maximums on Coinbase ($25K) and Robinhood ($50K) every day until Bitcoin was 25% of his net worth, buying near the all-time high at ~$18K a coin.

“I started buying $25,000 a day, which was the max on Coinbase, and then $50,000 a day on Robinhood, which is the max I could do there, every single day until I accumulated a position that was 25% of my total net worth was moved into Bitcoin. I was doing that at $18,000 a coin, which was almost the all-time high.”

Compress liquidity into one trading day to fake a deep market

Rally Road gamifies investing like Robinhood meets Tinder: assets IPO and then trade only one day per quarter, compressing all supply and demand into a tiny window so an illiquid marketplace feels liquid and creates FOMO.

“They do a drop like an IPO. You buy in, and then basically, that asset is locked up for 3 months. Then they'll basically trade each asset once a quarter. But only for one day. They're like, "All right, this asset is trading that day." Basically, they're compressing all the demand also into one day.”

Steal thisIn a thin marketplace, restrict trading to narrow windows so scarce supply and demand aggregate into apparent liquidity.

How Robinhood actually makes money: selling order flow to hedge funds

Shaan explains payment for order flow: Robinhood's 'free trades' are funded by selling real-time retail trade data to hedge funds and quant traders who front-run those orders, capturing pennies per trade by placing bids before the retail order executes.

“which basically is when you place a trade, they basically sell that trade data information in real time to hedge funds and quantitative traders who want to know what retail buyers are trying to do.”

Robinhood made ~$200M on order flow, ~70% of revenue

Shaan cites that Robinhood made around $200 million last year selling payment for order flow, which accounts for roughly 70% of its revenue. Options trade data is worth far more than plain stock buys because it's high-leverage and can swing small stocks.

“They made like $200 million last year on order flow data. It's crazy. So they make 70% of the revenue or something like that from this payment order flow.”

Robinhood, Coinbase and Chime will be massive fintech outcomes

Asked which companies still fit his 10x/100x sweet spot in 2020, Elman predicts Robinhood, Coinbase, and Chime as the three US fintech companies that come out of the wave as massive outcomes, plus Revolut and TransferWise internationally.

“In fintech, Robinhood, Coinbase, and Chime are the 3 companies that I think are going to come out of this wave and just be massive outcomes. And then internationally, I'm quite bullish on Revolut and TransferWise as two companies I think that will still be very significant.”

Deliberate action: the trait Elman saw in every billionaire founder

Elman's observation of founders like the Robinhood and Discord teams: they aren't fast, snap-decision makers; they take 'deliberate action.' They're voracious and do a huge amount, but can always give a clear reason for every hire, meeting, or choice, including why something that failed still made sense at the time.

“And the reality is I like to call it deliberate action, which is they're really deliberate about just about everything they do, whether it's a hire, whether it's a meeting they're going to take, whether it's a person they're going to spend time with. But they do a lot of things. They're kind of voracious. They just are like nonstop accumulating information, doing things. But if you ask them why, why did you do that? Why did you go here? Why did you think about that thing? Why did you say that? They actually always have a good reason.”

Alt-data marketplace: the $2-3B edge hedge funds buy

Shaan describes the $2-3B/year alternative-data market (satellite crop imagery, Google/Apple mobility, Robinhood order flow) and pitches building a marketplace where data providers list sources and funds browse, vet, and buy alpha.

“So The alt data market is like $2 to $3 billion a year right now. And what this means is, let's say you're a trader, you're on Wall Street, or you're a hedge fund manager, you are constantly looking for an edge. You're looking for alpha, as they say.”

Steal thisBuild a vetted, reputation-scored marketplace connecting alternative-data providers with quant funds hunting for alpha.

Shaan bought MGM puts by 'pushing buttons' and lost $2K in a week

Shaan admits he placed his first options trade during COVID while watching a Khan Academy video on what a put is, and only understood the trade after confirming it: a bet that MGM would drop 40% in 7 days. He lost the full $2,000, though a big Bitcoin buy at $4,500 made it back.

“And so I'm literally on one tab, I have like a Khan Academy video of like, what the hell is a put? And on the other hand, I've got my Robinhood account and I'm like just pushing buttons. And so I pushed a bunch of buttons and I placed this trade, which basically said, okay, I think MGM is going to go down and about $2,000 worth of options and like, let's see what happens.”

Steal thisNever place a trade you can't explain before you confirm it; understand the instrument first.

WallStreetBets: blowing up Robinhood accounts and deleting the app

Sam describes the WallStreetBets subreddit ('if 4chan had a Bloomberg terminal') where members post screenshots of buying $50,000 in options while in debt, and joke that when they lose a million dollars they just delete the Robinhood app and open a new account.

“And they post their Robinhood account of like they just like bought like $50,000 in options even though they're in debt and it just went up to $2 million. Or some people are like, well, I just lost a million dollars. And the joke that they do is Oh shoot, I'm in debt to Robinhood. Well, I'll just delete the app and create a new account.”