In brief
- Robinhood CEO Vlad Tenev says tokenization could have prevented the 2021 GameStop trading halt, blaming outdated settlement infrastructure.
- Experts say traditional brokerages handled similar surges, and Robinhood’s failure stemmed from inadequate capital reserves and risk management.
- Recent SEC guidance states that tokenized assets still require the same collateral and settlement controls as traditional securities.
Five years after the GameStop trading frenzy rocked Wall Street, Robinhood CEO Vlad Tenev says the episode was a “wake-up call” that exposed deep flaws in U.S. market plumbing, and convinced him that tokenization may be the clearest path to preventing another such failure.
In a post on X, marking the January 2021 meme-stock crisis, Tenev said Robinhood and other brokerages were “forced to halt buying” of volatile stocks like GameStop due to clearinghouse deposit rules tied to the then-two-day settlement cycle.
The result, he wrote, was “massive deposit requirements, trading restrictions, and millions of unhappy customers,” as outdated infrastructure collided with unprecedented retail trading volume.
The remarks revisit one of the most controversial moments in Robinhood’s history when, in late 2021, retail traders from Reddit’s r/WallStreetBets triggered a short squeeze in GameStop stock (GME), sending its price from roughly $17 at the start of the year to an intraday high of $483.
Robinhood soon restricted purchases of GME and other meme stocks, triggering lawsuits, political backlash from lawmakers, and a high-profile House Financial Services Committee hearing, where Tenev apologized for the company’s handling of the crisis.
Tenev said Robinhood’s advocacy helped move U.S. stock settlement from T+2 to T+1, meaning trades now settle in one business day, but noted delays still stretch to T+3 or T+4 around weekends.
The remedy he advocates for is tokenization, which he says enables real-time settlement and freer trading, an approach Robinhood is already rolling out in Europe with plans for 24/7, DeFi-enabled stock tokens.
“It’s reasonable to say that clearing and settlement rules played a big role,” Robin Singh, CEO of crypto tax platform Koinly, told Decrypt. “While faster settlement could help reduce these stresses, tokenization doesn’t remove all market or regulatory challenges.”
But critics say the settlement bottleneck only partially explains what went wrong. While the T+2 clearing cycle amplified liquidity pressure during the surge, it did not affect all brokers equally, raising questions about whether Robinhood’s internal risk controls and capital planning were adequate for the scale of demand it faced.
Musheer Ahmed, founder and managing director of FinStep Asia, told Decrypt that traditional brokerages have previously handled similar surges in demand for stock without incident.
“It is likely that Robinhood had not factored in capital reserves and risk management controls for such a high scale of interest,” he said.
“Irrespective of the scale and terms for collateral, the buck stops with the broker to be able to ensure smooth trading for their clients at all times,” Ahmed added. “If a firm is unable to keep up, then it is a lacuna that they need to work on and fix.”
Tokenization has been attracting growing interest, with top executives framing it as the next step in the financial evolution.
Tokenization of stocks can “potentially alleviate the collateral pressures,” Ahmed said, if there are “appropriate smart contracts in place to source the collateral in real-time.”
Still, regulatory constraints loom as on Tuesday, SEC staff reiterated that tokenized securities remain subject to existing federal securities laws, meaning that blockchain format alone does not change an asset’s legal status.
“Without regulatory clarity, such efforts are moot,” Tenev wrote, saying collaboration with the SEC and CLARITY-driven tokenization standards could avoid another 2021-style shutdown.
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Source: https://decrypt.co/356276/robinhood-ceo-gamestop-wake-up-call-tokenization
