This 1 Market Niche Is Growing at an Exponential Rate for Robinhood. That's Why I'm Bullish on HOOD Stock.
Key Points
Robinhood's new blockchain is seeing its volume of tokenized stock transfers explode at a tremendous pace.
Each of those transfers generates some fees for the business.
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This extreme rate of growth in tokenized stock transfers is likely just the start of the business and its blockchain becoming a major player within the tokenized stock space. Let's explore how Robinhood is competing so effectively in crypto.
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Tokenized stock trading volume is still rising fast
Tokenization is just a fancy term for the process of recording an asset's ownership information as a blockchain token so it can be freely traded on crypto networks. Today, Robinhood's tokenized stocks are available for more than 190 U.S. companies, but the tokens are only backed by offshore debt products that U.S. investors aren't permitted to buy, at least not for now.
Much of the trading frenzy that put Robinhood's blockchain on the map stemmed from investors' excitement about a "new" (and mostly useless) innovation: Pairing meme coins with tokenized stocks, thereby enabling the meme coins to throw off tokenized shares of the paired stocks to holders, somewhat like how a stock can pay a dividend.
While Robinhood didn't invent that combination, nor is the pairing of tokens anything new in crypto, the category nonetheless gained significant traction due to the perceived novelty of using tokenized stocks rather than other cryptocurrencies for the pairs. That was incredibly convenient during the chain's first few months, as it helped investors onboard capital and buy into its ecosystem, advancing the company's goal of scaling up its tokenized stock activity and offerings.
Every time one of those tokenized stocks or meme coin pairs changes hands, Robinhood collects transaction fees. In Robinhood's third-quarter earnings, the company said its chain generated over $50 million of chain fees, helping to boost its total revenue by 12% to reach $1.4 billion.
So the tokenized stock boom is still small relative to its revenue, but that could change soon enough if growth continues at its current pace.
Should you buy Robinhood stock for its blockchain?
In terms of its pool of users that it could potentially cheaply onboard to its blockchain, Robinhood had 28.6 million funded customers at the end of September. If regulations change to allow U.S. sales, the U.S. customers of this fintech stock could have access quickly.
Given the recent efforts of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to change the related regulations, not to mention how quickly the network's tokenized stock volume grew this summer, I think that it could be worth betting on that outcome.
While I don't plan to buy Robinhood's stock myself, I expect its value to increase significantly over the next couple of years as its tokenization bid plays out.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Robinhood Markets. The Motley Fool has a disclosure policy.
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