All-In with Chamath, Jason, Sacks & Friedberg - E22: Reflecting on the Robinhood situation with Bestie Guestie Vlad Tenev

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Now wait, Vlad, you have to turn your camera off. And then I’m going to do my little bit where the

bestie guesting door knocks. Oh, no, Jason. No, that’s not silly. This is silly. Here we go.

But I can do it. It’s very easy for me. Don’t worry about it. Don’t worry about

these guys don’t want to do it. They don’t like my they don’t like my bets.

Hey, everybody. Hey, everybody. Welcome to another episode of the all in podcast with us again,

the queen of Kinwa himself, David Friedberg, the rain man. Definitely counting cards. Yeah.

Burn baby David Sacks is with us. Chamath Palihapitiya, the dictator.

By the way, and by the way, go ahead, Jekyll. I’m Jekyll, aka baby seal.

Jekyll, could you take longer with the intros? I mean, this is like,

this is like your one moment to shine at the intros.

It’s like fucking torture. I know.

I like to do a little branding here. I’m branding you guys as characters on the show.

I do want to I do want to give a big shout out and congratulations for David Friedberg.

Wedding is beak in a big way. The story, by the way, we should actually have founder

crazy founder stories and we should have Friedberg tell the story of Metro Mile, but it closed its

SPAC transaction and went public and it’s doing great. And congratulations.

Thank you. Thanks, guys.

Well, golf clap. Thank you. Thank you. Very nice. And joining us this week as our second

bestie guestie after a triumphant performance by Draymond Green on the last all in podcast

is Vlad Tenev, who is the co founder and CEO of a new startup. We wanted to introduce everybody

to it’s called Robin Hood. Vlad, tell everybody what is Robin Hood and what’s the mission of this

new startup you’ve you’ve got. Thank you for for having me having me here hanging with you guys.

Robin Hood’s mission is to democratize finance for all. It’s somewhat new. We’ve been around

for a little bit over five years and we have a mobile app and a website that allows customers to

invest in stocks, options, cryptocurrencies. We offer a debit card and a high yield savings

product as well. Commission free and with no account minimums. Vlad, I think you’ve done an

amazing job building this company and you guys have done an amazing job democratizing access to

the ability to trade. Can we fast let’s fast forward to the issue that I mean, this

we discussed, I guess, a few pods ago because there was intense interest in this. I think it’s

our highest rated pod ever was discussing the GameStop issue. So you had these these traders

from Wall Street bets, these Redditors who, like you said, they perceive themselves as the heirs

to occupy Wall Street. They’re they’re trading for profit, also for revenge. And and then,

you know, you guys, I guess, get a call in the middle of the night from the clearing house and

you have to freeze the buy side of the trade the next day. I guess let’s fast forward to that

because that was the thing that, you know, got everybody up in arms. Could you, I guess,

talk to us about kind of what happened? And I’m sure you didn’t want to have to freeze trading,

right? But you are being compelled by this clearing house. Can you kind of explain what

they told you and why you had to do it? And why not just ask them to give you the order in writing

so you can post on your website so everybody would know you didn’t have a choice? Is that

something you could have done? Well, I think the challenge was that no doubt we could have

communicated this a little bit better to customers. Right. By the time by the time we restricted

these securities to PCO and it was 13 securities that we limited to sell only, that process is

actually operationalized within Robinhood. So it’s we do it from time to time under various

circumstances like corporate actions. So when something has a reverse stock split or something

like that, we can PCO it for a little bit. So there’s a button in a dashboard that, you know,

you can click and automated emails get sent out. So it’s a it’s an operational process that I think

in hindsight we probably should have exceptionalized to to make it to make it clear why we were doing

this, just given all the swirl around all these meme stocks online. But as soon as those emails

went out, the conspiracy theories immediately started started coming. So my phone was blowing

up with, you know, how could you do this? How could you be on the side of the hedge funds?

And of course, we’re not on the side of the hedge funds. I mean, we’re we’re building products for

our customers. And we just had to do what we did to meet our deposit requirements, because

if we didn’t do that, we would be in violation. And the consequences of that could have been much,

much worse than simply holding buying in the 13 stocks.

I think that’s where you know, when you were on CNBC with Sorkin, people either thought you

were obfuscating or you were lying. You know, and part of it is sort of the the guts of your

business is that at some point as well, you guys decided to self clear, right? And then going into

self clearing, you become liable for every single trade that happens on your platform.

Like, if you look back on those two weeks, what self clearing means, it means that, you know,

typically, you can work with a wholesaler to offload the risk. So Vlad acts as a transaction

layer and as a UI, and somebody else is responsible. At some point, these guys,

for economic reasons, decided to take that responsibility on themselves. But when you do

that, you take on the full fledged liability of the value of every single trade on behalf

of your customers. Yeah, I would think about it, I would explain it as there’s like pre trade,

right? Then the trade and then post trade. So Robinhood obviously does pre trade with,

that’s the app and what’s called the introducing broker dealer, or market makers do the trade.

So we route it to, you know, all the firms like Citadel execution services to Sigma,

and then Robinhood securities does the post trade, the clearance and settlement. So we manage

the exchange of cash and stocks that happens on t plus two. So two days after the trade is made.

So what was not I mean, if you had to give that answer again, when Sorkin said,

you have a liquidity issue? Was the answer? Yes, we have a liquidity issue. And here’s why?

Or is it still the same answer? It wasn’t.

So I stand by what I said, and I’ll explain it. And thank you, by the way,

for giving me a chance to explain it. First of all, restricting securities,

restricting the buying of securities is something that every pretty much every broker did to some

degree during this week, right? So when you say the L word and financial services,

it reminds you of Lehman Brothers, where you literally are not able to operate your business.

We met all of our deposit requirements. The new capital that we raised, the 3.4 billion,

wasn’t to meet our ongoing deposit requirements. We had met them. And in order to relax them

and eventually unrestrict them, we needed to raise some more capital and eventually have

more cushion so that if we keep seeing the type of growth that we kept seeing,

we didn’t have to impose position limits again. So I stand by what I said. I think if you describe

that as the L word, pretty much every broker would have had that issue. And I think at that

point, the word kind of loses its meaning and the gotcha factor that the journalists are trying to

get out of it. Do you think that the risk in the business went up when you decided to self-clear,

or would this risk have been the same if you worked through a wholesaler?

Well, I think a lot of the other brokers who relied on clearing firms had the same issue,

right? There’s firms like Apex Clearing, which has introducing brokers. Cash App, for example,

clears through a third party as well. And they all had this issue. And of course, their response was

they kind of threw their clearing firm under the bus. So obviously, we’re not going to do that

because our clearing firm is Robinhood Securities. But I think understanding the space a little bit

better since Robinhood Securities is a subsidiary of my company, I realized these clearing firms

had to do what they did. It’s non-negotiable to meet your deposit requirements. Of course,

we can ask, what can we do? Are these deposit requirements sensical? What can we do to drive

change in the system? And I think that’s where my… Who sets those?

What’s that? Who sets those requirements? That’s the clearing house, right? Is that the DTCC?

Yeah, it’s the DTCC. And a lot of this stuff is actually spelled out in Dodd-Frank. So if

you look at Dodd-Frank, you’ll see descriptions of the VAR charge and the various special charges

there. But I do think one thing that I’m very excited about is not going beyond just talking

about our problems, right? I’ve talked about our problems a lot, but talking about solutions and

how we can create a better financial system in the future. And I really think if you understand

the underbelly of what T plus 2 settlement is, you immediately ask yourself, why aren’t we

settling trades in real time? And I wrote a post on that. I had a tweet storm. I’d also say some

of the feedback that I’ve gotten is, here’s Vlad from Robinhood telling us about trying to change

T plus 2 so that he can meet, he can lower his deposit requirements. I think there’s lots of

other systemic issues that fall out of that. In particular, right now you can short sell more

a stock than the shares that are outstanding, right? So some of these stocks had 140% short

interest, right? So more shares were shorted than actually outstanding. And I just think that’s

pathological. And it stems from the fact that these shares are tracked on pieces of paper.

So they’re basically not tracked and someone can – I can lend you my shares. You can short them.

The person that’s buying them from you can lend them again and you can do that multiple times

and you end up with this situation that could destabilize the financial markets, right?

Okay, so moving from T plus 2 to T plus 0, that’s one issue. Where do you think margin?

Yeah, that’s what I was going to ask. Where is your margin?

What’s your thoughts on margin?

Yeah. Well, so margin wasn’t involved in this particular situation. In fact,

there was an escalation path. Not a lot of people noticed until Thursday, but

pretty much all the brokers, including Robinhood, were ratcheting up the margin requirements for

all of these securities until they got to 100%. So by the beginning of the week, they were pretty

much all at 100%, which means you can’t use margin to buy them. You have to have them 100% covered.

So do you guys have a more specific question on margin?

Well, I meant more like – so for example, I think it’s true, but you tell me if this is not true.

You guys paid like a $65 million fine to the SEC for gamifying Robinhood, right?

It’s not exactly true, but go ahead.

Okay. Do you want to just tell us what the truth is?

Yeah. Well, so the fine wasn’t for gamifying Robinhood. It was for payment for order flow

and business model related things. The gamification one is the Massachusetts

securities one, which is a separate thing. And look, on the SEC thing,

we’re a fast growing company. We obviously scaled a lot between the period in question.

Obviously, the Securities and Exchange Commission felt like we could have done things better. And

I own that. I think that we’re fine being held to higher standards. We have to hold ourselves to

higher standards. And what we can do is just do some of the things we’ve done. Staff up our

compliance team, staff up our legal team. We brought on a new chief legal officer who’s a

former SEC commissioner, two new chief compliance officers for Robinhood Securities and Financial

who had decades of experience and the level to which we’re investing in compliance. I mean,

the goal is to build the finest legal and compliance team that the financial industry has

seen. Let me tie it back flat to what we were talking about before. So do you think that it’s

okay, if we’re trying to build a generation of investors, to give them access to margin

as easily as some apps, including Robinhood does, and then separately allows them to trade

highly transactional high vol instruments like options. On top of that with margin,

what do you think about that just as a general philosophy, forget business building for a second?

Well, and then also, can you say what the margin you allow is for a new account? Because I don’t

think people understand what that is. Maybe a little definition there.

Well, there’s a couple of things I want to clear up. Number one, you can’t trade options on margin.

So options are all fully paid for. Margin is not suitable for everyone. I’ll admit that. You have

to understand it. And you also have to be a Robinhood Gold customer, which means you have

to sign up and pay $5 a month. Most brokers don’t gate margin behind a premium offering.

So we’re already a little bit more restrictive on that front. You have to have $2,000 in your

account before you can borrow. And in December, we did lower our margin rates to 2.5%, which is a

very competitive low rate. But let me tell you a use case for margin that I actually think is quite

powerful. So obviously, one use case is kind of the typical one of buying more stock with your

money. But if you build a large portfolio, you can actually use margin as a line of credit.

And we offer this feature with our debit card. You can turn on what’s called margin spending.

And what that means is if you invest in your portfolio, you can borrow collateralized by

your portfolio at a very low rate, which is one-tenth of what you would borrow

through a credit card. So I actually think it’s a powerful tool. Certainly,

customers have to understand it and be suitable for it. But it unlocks a type of borrowing,

not just for buying stocks, but for meeting your daily purchasing needs that I think is very useful.

If somebody puts $2,000 in Vlad, can they trade $4,000, $6,000, $8,000? And does it

matter what equities they’re holding? How does it work?

Yeah, the actual calculations are – there’s no blanket formula I can give you because it does

depend on the securities that you buy. So the example I gave was, for example, GME and some

of these other meme stocks. We raise the requirement on those to 100%. So those have

to be fully paid for. Other stocks have an initial requirement as low as 25% if it’s one that is

deemed by the operational staff and our processes as not being super volatile. And it can go in

between. So 25% initial requirement all the way up to 100%.

So you can trade four times your money if it’s a really blue-chip, secure stock?

More or less, yeah, with some nuance around that.

Time and again, Vlad, there are studies that show that it’s really difficult to beat the market and

make money trading in an efficient market like the market we have for stocks or options or what

have you. There’s a lot of players. There’s a lot of liquidity. There’s a lot of people with

information. It’s these great fund managers over time underperform just the S&P, right?

And I think I mentioned this when we had that pod a few ago that I was involved in a Forex

trading company and 60% of accounts eventually ran out of money. Can you share with us what

percent of Robinhood accounts run out of money? And do we mask generally, and I’m not accusing

Robinhood specifically of this, but do we mask the idea of investing in businesses

as a way of hiding that people are really just using this to trade in and out and try and make

money in the short term? And ultimately, the majority of them end up losing most of their

money because the fees and the spread and the margin or whatever it is that kind of adds up,

wipes out the account. That’s what I saw at this Forex company I was involved in.

Can you share with us in a very candid way how many accounts do eventually go bankrupt at Robinhood

and how much of that do you really see? First of all, I’d say Forex is a little bit

different because the leverage you get in Forex is like orders of magnitude higher.

Yeah, I’ll admit to that. It was like 10 to 50 to 1 leverage. So you’re totally right. Yes, 100%.

So I do think the businesses are a little bit different. Most of our customers don’t use

leverage. Most of our customers aren’t active traders or trading options. And if you look at

some of the features that we’ve rolled out, the theme of this year has been how do you turn a

first time investor into a long term investor? So fractional shares, recurring investments, drip.

These tools allow someone to create a diversified portfolio of individual stocks and

recurringly buy into them over time. But is that the majority of users today or the minority?

How many accounts do you see cycle down to zero over what period of time?

I think a very small percentage of accounts have that property. I mean, I think if you look back

in 2020, we had a huge increase in growth and interest in investing right at the bottom of

the market crash in March. And I think people have taken advantage of that. And our customers

in general have benefited from the recovery very, very significantly. So I would reject the meme

that Robinhood customers are active traders that are just churning their accounts and losing all

of their money. That’s just simply not what we’re seeing. I know Sachs has a question,

but one question I had with the conspiracy there is that I would just love to hear a yes,

no to. Sure.

Did Citadel call you and say, stop this madness, because they had exposure through one of their

hedge funds with GameStop? And did Sequoia call you and say, hey, stop this madness?

Or Joe Biden, you forgot the White House one. No, no. This was a formulaic decision

made by Robinhood Securities due to deposit requirements.

So Citadel didn’t call and ask. Sequoia didn’t call and ask.

Did the SEC call you and say this has to stop?

No. But the clearinghouse did, right?

Yeah. Well, they called and they said, here are the deposit requirements,

and we worked with them to lower the risk so that we could meet the deposit requirement.

Got it. And so just let me pick up on that. So at the same time that was happening,

and I know this wasn’t Robinhood, this is not your company, but Discord and Reddit were receiving

reports that the WallStreetBets forum was engaged in hate speech. And there was an organized effort

to get them censored and taken down. And Discord basically fell for it and took down WallStreetBets.

Reddit, to their credit, did not. Do you have a take on what happened there? And I mean,

I assume you don’t think WallStreetBets was engaged in hate speech.

Well, so that happened Wednesday, I believe. And yeah, we were watching it. It was first,

it was like, oh, wow, Discord, Discord shut down. And then I think WallStreetBets

went dark on Reddit for a little bit as well, but I’m not quite sure of the reasoning behind that.

Look, I mean, I disavow hate speech, misinformation. I’m not, you know, judging

which of the posts are hate speech or not. I think that’s the social media companies that

should take a look at that. The mods, I think the mods closed down Reddit for like,

a little bit and then turned it back on. Yeah. Yeah. I mean, a lot of these things get triggered

if 10 people reported at the same time, it just, it sets off a circuit breaker.

Yeah, it seems to me that, and certainly this is, if you want to call it a conspiracy theory,

it seemed like you had this WallStreetBets group, they were on one side of the trade,

you had these WallStreet hedge funds that are on the other side of the trade.

And there was an effort to weaponize the speech rules of Reddit and Discord to cut off the lines

of communication of WallStreetBets. Because the only way that WallStreetBets as a decentralized

group of millions of traders can stick together and compete with these hedge funds is if they

can communicate with each other by these services. And so, you know, it seems like there was an

organized effort to try and take them down at the exact same time that they were frozen out

of the buy side of the trade. Vlad, do you think that there should be

more transparency in the financial markets, meaning everything from payment for order flow,

how much money companies make lending out their stock, which company is short, which stock,

which company is long, which stock on a more frequent basis, how much margin people are

running? Do you think like we should move to perfect transparency in the financial markets?

I do think that there should be more transparency. And I’m glad you brought up payment for order flow

because it’s something that I’m trying to take on. You guys might have noticed I published a

post on payment for order flow. I started a tweet storm that is meant to just start the conversation

around it. I want to understand kind of the misconceptions and the theories and knock them

out one by one. And I think that’ll lead to some positive discourse around it. And there certainly

might be things that’ll have to change. And I think that the first step is actually engaging

in the conversation and kind of connecting the people that understand the details with the people

that have issues with it. And I don’t think that’s been happening enough. So for sure.

But what about stuff like margin shorting, you know, short, like, do you think that we

should move all of this stuff so that it’s just out out front for everybody to see?

Well, I think I think if we if we migrate to a better settlement infrastructure

and move to real time settlement, you get a lot of that stuff for free. Right. So you do get and

I know a lot of the crypto people came out after I published my post and said, you know, crypto

solves this. You could just put it on on a block chain and everyone could see publicly what’s going

on and which share which shares are being being held short where they are, who’s owning them.

So I think I would be in favor of more transparency. I’m not sure at what point

there’s sort of like negative secondary effects. I haven’t kind of unspun the thread fully,

but I think we can we can keep taking it one step at a time and see more transparency generally,

I think, is much better. Hey, Vlad, when you guys go public,

you’ve talked about having a listing at some point here soon. Why would you not have all

of your shares sold in the IPO through Robinhood to your retail users? Why would you sell any

shares to institutional investors? Wow, good question.

It is an interesting question. It’s it’s one that I probably that’s probably the one I can’t give

too much detail on. Hopefully you guys understand my recommendation, if you’re going to democratize

access, do it all the way. Fuck the hedge funds and the big guys. If that’s the if that’s the

point and you give retail equal access, you know, in all these transactions, as you know,

institutions get get all the access and the retail is paying the price.

Have your entire listing done through retail. It would be it would be a game changing transaction.

Yeah. So, I mean, a lot of this it’s really interesting that this turned into,

you know, individuals versus hedge funds, because I think that’s a really powerful story.

But you also have large institutions like Fidelity that are holders of all these stocks,

right? You have individuals on a lot of platforms that were short selling them

as well. Not Robinhood, because Robinhood actually doesn’t doesn’t allow short selling

by individuals. But a lot of the other brokers do. And you have you had statistics, statistics

coming out that actually show retail versus institutional. And, you know, there was some

counterintuitive results. So I think if you actually look deep into the plumbing, the story

of, you know, long individuals, short institutions on opposite sides, I think there’s a little bit

more nuance to it than that. Vlad, if you had to do it over, or actually forget about the past,

think about the future. What do you change inside the company?

Well, let’s see. I think the 3.4 billion in extra capital certainly helps. I think I’m very proud

of the transition that we made between Thursday and Friday. So Thursday, we had the blunt hammer

of PCOing these stocks, right, which obviously was not ideal. By Friday, we had moved to a much

more sophisticated system where intraday we adjust the position limits in, it was up to 50 stocks,

and we published that on our website. So that that gave us a lot more granular control over it

and is a better system. And we’re going to only improve that and kind of take the learnings to

other parts of the business. So I think the great thing about, you know, these sorts of crises is

sort of months and years worth of work get compressed and people are just like super

aligned on the key priorities we need to do to move the business forward. And we saw that.

And then the third thing I’d put is just maybe you guys have seen, you know, I feel like I

evolved as the chief executive and as a leader, I didn’t used to be on social media telling our

story very much. But I’m out there trying to encourage more transparent, I would say much

better today than with Elon, much better with Elon than Sorkin. So progress has been made. I have

just a basic question. I know we got to wrap soon when things get superheated, and you have this

viral momentum where I don’t know how many people tried to sign up on that day. But maybe you could

give us an idea on that Wednesday or Thursday, was it, you know, five figures, six figures or

seven figures worth of new accounts? Why not throttle the new accounts and say, hey, we’re

you’re on the waitlist, we onboard 10,000 people a day, your day is going to be next Thursday,

so that you don’t get caught in this. You know, everybody uses the fact that it’s friction free

to sign up to do an emotional bat in a, you know, let’s call it mob behavior, right? Like,

this turned into a mob. And I guess some people believe it’s a good mob to go up against the

hedge funds. But it could have equally been something, you know, something more deranged,

and even more edge case is going to happen. So when that does happen, and a million or 10 million

people sign up, can’t you just pause it and say, we’re not going to do any new accounts today,

we’ve reached our limit. We actually did do that. So we have been pausing new account approvals

off and on, depending on on the load. And, you know, customers have been experiencing,

in some cases, short delays, with account approvals, obviously not an ideal solution

from our standpoint. But, you know, if we have to do that, we will do it. And we have done it.

How many people signed up on that Wednesday, like just ballpark,

like, was it hundreds of 1000s? Millions? Jason, are we are we running an ad for Robinhood? Stop?

No, I’m just glad last night. None of us cares. None of us cares. flat last question.

Hit me. Hey, listen, if you had to pick two different CEOs reactions to how you dealt with

it, let’s say Tim Cook on one end of the spectrum and Zuck on the other. How do you think they would

score what Robinhood did and what they are doing? Tim Zuckerberg?

You know, I’m not sure. I think that

I think I’m proud of, of how the firm navigated this. I think, obviously, there’s ways to improve

upon it. I think that, you know, anytime you get a phone call in the middle of the night saying you

have to put up $3 billion, all sorts of things run through your head, right? I’ve had it happen. I

know. And that was just money from the cage for poker. I got a lot of people reaching out to me.

I got a lot of people reaching out to me, which was amazing.

If you had to do it over again, why not just post a blog that morning saying,

hey, we got a call in the middle of the night, we have to do this. Is that is that the thing you’d

do over again? No, because he’d be throwing his own company under the bus. He’d have to say

Robinhood Securities is telling Robinhood the broker to post this money because Robinhood

Securities is being told by their downstream clearing. So it’s like you’re you’re you’re in

a possible situation. But you’re saying it now. So better to say it at the time it all happened

and it would have diffused the whole crisis, right? Well, first of all, I’m not throwing

anyone under the bus. We did. The team did what they had to do. I don’t think there was any way

to navigate that differently. I think the automated emails that went out to customers saying

your stocks are you’re restricted from buying these stocks probably could have been handled a

little bit better. We probably could have offered more detail into that with the foresight that

maybe customers would think that a hedge fund forced us to do it or something like that.

So certainly, certainly there’s areas we can improve upon across the board. And

when an early investor called me throughout this and said, hey, chin up, you know, navigating a

crisis successfully unlocks the next level of value creation for the company. And I’ve had that

in mind the entire time. And I’m just doing what I can to to make that for sure a reality,

both for Robin Hood and for the financial system. I think that this could lead to some

really positive change industry wide. Yeah. And I’ll just this one last softball here.

This is not about what happened that with GameStop. We’ve had a debate on this pod.

It got kind of heated between Chamath and Jason about the nature of Jason’s investment in Robin

Hood. Can you tell us, can you tell us your side of the story of what happened at Antonio’s

Nuthouse and how much how much stumbling was involved precisely? Okay. I’m very glad you

brought this up because I’ve been meaning to call Jason out on it. He has this great story of how,

you know, we met at Antonio’s Nuthouse and he wrote a check. I think that the real story is that

on Robin Hood launch day, which was a Saturday, and we violated every rule of PR and marketing by

launching inadvertently on a Saturday. I got a reach out from from Launch, who was one of the

first one of the first outlets to cover our launch on Saturday. And Jason’s friend, Simon,

ex-employee who ended up running social for us for a bit, was a big fan of Robin Hood. So

he joined us as kind of our first social person. He introduced me to Jason. I met Jason at Sequoia,

Jason, where you agreed to invest. And then six months later, we met at Antonio’s Nuthouse when

we were raising our Series A. And I think you gave me the advice to go with Index Ventures.

No, no, I said Sequoia all the way. Don’t get me in trouble. I’m team Sequoia. I promised. Michael

Moritz, Doug Leone, whoever’s watching, I told them Sequoia. Sequoia was great. They unfortunately

passed on our Series A, as did a lot of other funds. Ouch. Wow. All right, listen, thanks for

coming on the pod. We really appreciate you taking the time and continued success. Vlad, I’m really

glad we didn’t give you a job offer back in 2008. Sounds like it was the right move for you.

Funny how things worked out. Yeah, apparently I interviewed him in 2008 for a job and he didn’t

get the job. It was you and Alex. Alex Michalka was my main interviewer. But it’s funny, I

graduated with a math degree, right? I was doing pure math, which in 2008 made me unemployable.

We were the only people hiring at that point. Yeah, yeah. You were the only people that would

interview me. Yeah. Everyone else was like, where’s your computer science degree? Can you

code? So I ended up going to math grad school, which was one of the few options that I had,

and ended up dropping out, and here I am. So funny how things work. Well, good for you.

All right, continued success, and thanks for coming on the pod. We’ll see you soon.

Thanks, Vlad. Thanks for having me.

Wait, Vlad’s back? Wait, Vlad’s back. Sorry, I thought I was supposed to leave. I didn’t

know if you guys want to meet. No, you can stay. I was saying, you can stay. I was saying after

a year of Jason asking us to run ads, he’s found a way of trying to make this a 45-minute

infomercial for Robinhood. Absolutely. Listen, I’m ride or die, Vlad. You know that. I’m ride

or die with my founders. I didn’t ask for that and I don’t need it. We’re just trying to keep

everything up and let all the people safely in who have been banging on our door.

How much have you been sleeping, Vlad? Have you been able to sleep? I mean, this has got to be

exhausting. Oh, my God. Really? Can you ask him something like at least semi-fucking challenging?

Honestly. That’s not my job. That’s why you guys are here. If you’re walking down the road and a

Robinhood customer, this is a tough one. I’m sorry. You thought you were over this, but you

logged yourself back in. So, and a Robinhood customer that lost all this money when they

got locked out of trading that day comes up to you and screams and cries, I lost all my money.

What do you say to him? I got completely destroyed. My life savings is wiped out. I mean,

I’ve read a bunch of these comments on different boards and so on. What do you say? Because I know

that’s a tough one to swallow. And I know that we’ve heard the story around what happened. But

what do you say to that person? Well, first of all, I’d be very, very empathetic. I probably

want to understand how someone could lose money when they couldn’t buy a stock at the all-time

high. So, I think the details around that, I mean, if you look back, and obviously this had

nothing to do with the decision, right? But Thursday was the all-time high.

Yeah. Yeah. But the reason for that is because the ability of Wall Street bets to continue the trade

was basically interrupted, right? They were engaged in a short squeeze against these big hedge funds.

And in order for this to keep driving the squeeze up and up and up, they needed it

basically to be able to buy. And then once they got frozen out of all the online broker accounts,

not just you guys, but all of them, that broke the trade, right?

Maybe. I mean, hypothetically.

But that’s what they were so upset about is because they got locked out of the buy side

of the trade. They weren’t locked out of the sell side, right? They got locked out of the buy side.

And that allowed the big hedge funds 24 hours to regroup and cover the trade. The price went down.

And that basically cracked the whole thing, right?

Well, I’m not sure about the exact details there on the hedge fund side or what happened. Look,

what I can say is we’re going to do our best to make sure that we get better and we serve

our customers whenever they want to buy stocks. And we’ll do that and we’re going to get better

and better every day. And the truth is, if you had had the money in the bank account to for DTCC to

be compliant, you would have been like you weren’t trying. I mean, you’re in the business of letting

people without question. Yeah. Yeah. You make nothing if people stop trading, you need people

to trade. It’s the core of the business, right? Yeah, this wasn’t, you know, a value judgment or

some kind of moral stance. And we weren’t pressured into doing it by anything other than our regulatory

deposit requirements. What do you think is the future of payment for order flow and revenue

sharing on sort of like the ways in which like meaning, how much do you think of that payment

for order flow revenue? Should you share with customers? Yeah, that’s a good question. I mean,

this is all highly regulated, and it’s become the industry standard business model, right?

So I’m not sure we’re excited to have a conversation about it. I do think exchanges

are here to stay. Market making is here to stay. Market making is a profitable enterprise. And so

some level of revenue share between the market maker and the broker makes sense. And it is

regulated. So I’m not quite sure what if any changes need to come, but hopefully this will

be part of the conversation that we can help create and work through. I think part of the

problem is just the opacity of it. You know, it’s kind of like interchange. Does anyone know that

interchange is this sort of like hidden piece of revenue every time you transact with a debit card

or a credit card? It’s sort of analogous in a way, right? Well, I think more people do just

because the technology companies that have come around, like, you know, Stripe and others will

eventually just try to take it to zero. And so if anything, I think what the business model,

or at least the business strategy of all these companies is when you find to your point, these

opaque pools of revenue, the innovation is just to give consumers power by taking these costs to zero.

If you Vlad decided tomorrow to do Robin Hood Pro, you know, higher level than gold and charge

50 bucks a month for 50 trades, and then $5 each trade after that would solve anybody’s

misgivings about this, right? You could just offer both options.

Well, I think it’s it’s payment for order flow enabled commission free trading, right? It helps

cover the costs of the business that that that leads to our ability to offer commission free

trading. And moreover, it allows smaller investors to participate. So certainly, I think

that model would work, but the consequence would be smaller investors would not benefit, right?

If the option is there, it’d be like Facebook saying we have an option for you to pay and not

see ads and be tracked, right? It would just be great option.

What do you think is the difference between investing and trading? And what do you think

has to happen so that, you know, back to where you started, if you want people to

close the inequality gap? How do you allow them to do it? Trading versus investing?

Well, I think the difference between trading and investing, investing is a little bit more

about accumulation. So typically, you’re buying more stock and building up positions over time.

Trading comes into play. I think when when you’re selling, right, when you’re selling

sort of strategically, and you’re doing it not driven by outside needs for the for the capital,

but more for for sort of like, intrinsic needs. So I think the question is, would we

would we ever prevent people from selling? Ideally not. I mean, people have various needs that

that they could have for getting out of positions. And I think as a platform, we have to allow for

that. Awesome. Your PR people are literally going to come freaking out breaking your glass in your

house. Your PR person is literally running from HQ. She’s gonna be start banging on the back window,

you cannot be on the spot. Great job, Vlad. And remember, use the order code, bestie and get

kind of your first free month.

Well, thanks for having me, gentlemen.

All right. Thanks, man. Great job. Take care. Thanks. Thanks for answering our questions.

Yeah, thank you for coming.

You’re gonna log back in in 10 minutes, right?

Come back for the Chess of Budin and Gavin Newsome recall news,

your PR people will be delighted if you comment on that.

Are we going to do a debrief?

The debrief, from my opinion is that I think that there have they have to really tighten

two things. One is they need to make a decision. How do they want to make money? Because I think

this is the third time these issues have come up. It’s probably not going to be the last

and because there’s going to be more market volatility, not less. And so you just got to

decide how you want to make money because there is no amount of money that’s possible. If you’re

going to build a successful business and run into these margin constraints, right? You can’t,

there’s just no amount of money that you could have. Meaning, if you look at the folks that

didn’t get called were folks that have like Schwab accounts. Why? Because Schwab is investing.

And if you look at the folks that did have these margin issues, because Robin Hood wasn’t the only

one, they’re all the trading and, and sort of like high frequency shops. And so, you know,

that’s a decision. And then it’s back to what David said, which is like, once you make a decision,

you have to be able to tell people like, this is what you want to stand for. And you have to have

the right internal controls and governance. And so, you know, if he gets these things, right,

maybe they can be on the other side of it. Otherwise, they’re just going to continually

step on this stuff. And I think that the, you know, if folks lose enough money, they’re going

to be pretty upset. I think sounded to me like David. Freeberg, you had a good point about

offering the the Robin Hood consumer base, the ability to buy the shares, I think 100% of it

should go to the retail investors. He didn’t say no. And he kind of I kind of got the inclination

that he was going to do that. 100% he will not. Yeah, this came out in the past where he said

they were going to offer some of the IPO shares to Robin Hood customers. And so that was a few

months ago. I think I said publicly on Twitter, why don’t you offer all your shares to IPO

customers? Like why take any of them direct? I mean, could he technically become a clearinghouse

and IPO people, but then what is it like partnership in it? Yeah, like, why don’t you

just take, you know, if fidelity wants to buy shares, let them buy shares on the open market,

like all the retail customers are forced to do. And then the fidelity argument is, well,

we’re buying 50 $100 million blocks at a time. So we don’t want to have to be in the market doing

that. But the marginal cost of buying a single share versus the marginal cost of buying a million

shares is much, much higher. And you know, that’s the that’s the challenge with, you know, with

retail access in financial markets that Robin Hood has set out to solve, as have many others.

And it would be a really powerful statement if they said, you know what, we’re going to show

the world that the market can all go direct and be efficient, and actually make all of their IPO

shares available. And then you know what, if the big block trade guys want to buy some,

go ahead and buy it from the retail guys in the open market, or do 5050, you know,

offer everybody who’s a Robin Hood shareholder, I just think that they would if they could fill

their demand, their demand on their book for their IPO from retail, do that. And let anyone

else let fidelity sign up for Robin Hood account and buy their shares through Robin Hood, you know,

like, the fact is, the big block buyers always get a discount, right? They pay wholesale pricing in

these markets. And that’s also part of why it’s so difficult for retail to actually find a footing.

And so it would be a really powerful statement for them to kind of go all the way. Sure,

I think it’s almost certain they’re going to get some of the shares available in the IPO

to Robin Hood customer. It’s a great, it’s a great kind of, you know, publicity point,

but, but it would be really powerful if they shifted the whole the whole thing.

I mean, years ago, when I was at Google, we did the IPO, I don’t know if you guys remember this,

but it was the first time we tried to do this Dutch auction. So the reverse pricing of anyone,

any individual, any retailer, and retail customer and any institution could bid on Google shares.

And then there was a clearing price that was hidden, everyone got their shares at the same

time. So there wasn’t this order book that was built by going to the big guys that the banks

all know and love like Fidelity and Tiro and so on, selling a big discounted shares, it was a it

was a it was a true market auction. And the direct listing is the new model for this that totally

democratizes access to the shares, creates fair and transparent pricing for everyone. And so you

don’t end up with these like discounted shares that pop 80% on day one. Okay, Saks, what is your

debrief on the Vlad appearance? So I think Vlad did a pretty good job handling our questions,

answering some B minus, answering some deflecting some, I think that look, I think I don’t think

Vlad’s a bad guy. I think he’s a good guy. I think Robinhood wanted to do the right thing.

I don’t think they had any reason to want to freeze their own users out of their accounts.

I don’t think they wanted to do what they did. I think that there was a little bit of a blind spot

there on his part in terms of understanding the consequences of that freeze out, right? Because

it did break the buy side of the trade for Wall Street bets. And then that that basically allowed

the hedge funds to recover. And that was that moment, you know, and so that was that was a

big deal. I think the consequences of that decision were a big deal. But it’s a counterfactual,

right? We don’t know. We’ll never know. Of course, look, it was it was that Thursday,

where the short squeeze ended because Wall Street bets couldn’t keep buying,

they couldn’t keep engineering their side of the trade. Obviously, that’s why it cracked,

right? And Robinhood was a big part of that whole thing collapsing. Now, it was going to collapse

at some point. There’s no question that the air was going to go out of the balloon.

Right. But would it have gone to five or 600 is the question?

Yeah. But how much money the hedge funds were going to lose, whether they’re going to get

busted out of the game for good, and who was going to get left holding the bag? Those were

all questions that got answered in a completely different way. Because Robinhood did what it did.

Now, I don’t believe that they had a choice. I think they did it because they were forced to do

it. But it did have huge consequences. I thought he did. He’s doing a better

and better job explaining this highly technical stuff. And, you know, obviously, if they can’t

talk about their IPO, that does tell you certain things. I don’t have any inside information. But

he obviously there’s thing what I get from this is there are things he can talk about,

and there are things he can’t talk about, there might be either things with the IPO,

or things with confidentiality between them and some of these parties, like,

I have a feeling people are not allowed to talk about this DTCC and what goes on there.

Because there might be I would have liked that that was an area where I really wanted to hear

more details and get more clarity. Because, I mean, I believe that look, the order came down

in the middle of the night from the DTCC. Right. And so that’s why I kept asking, why wouldn’t you

just say to the DTCC, give me that order in writing. Yeah, I don’t think it’s allowed to

talk about them. Okay, fair enough. That’s what I’m reading into it. And I don’t think I think

it might be one of these non disclosures, where you can’t mention the non disclosure,

which we’ve all been involved in. Maybe, but see, that was the heart of my question is if

you’re ordered by somebody in the middle of the night to take an action that is, you know,

adversarial to your own users, well, I would ask them for that in writing and posted on your

website, posted on your blog, so to show that you don’t have a choice. I mean, I believe that he

didn’t have a choice. But why didn’t he say that from the very beginning? Right? I mean, that’s

what caused all the problems for them. Yeah. All right. They have folks everybody go to

the slash all in boys. I love you. I gotta go. Great job. Talk to you soon.

Talk to you guys later. Love you guys. Love you, bestie. All right. We’ll see you all next time.

Bye bye rain man David

we open source it to the fans and they’ve just gone crazy.

Oh man.

We should all just get a room and just have one big huge orgy because they’re all just useless.

It’s like this like sexual tension that they just need to release somehow.

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