GameStop Debacle: DeFi Solves This
The House Financial Services Committee’s hearing on the Gamestop / RobinHood debacle provided a foggy window into the shortfalls of traditional finance.
When you cut through all the “I appreciate the question” and “Thank you for that important question” stonewalling, robotically articulated by Vlad “Totally-Not-A-Vampire” Tenev, two issues clearly stood out: equal opportunity and real-time settlements.
It’s really quite simple. You can’t turn off trading for retail investors of your app and call that equal opportunity. Shutting down RobinHood’s retail investors’ abilities to buy certain stocks allowed bigger companies like RobinHood and Citadel, the world’s largest market maker, to unfairly manage their risks by taking advantage of a loophole that avoided real-time settlements.
As a retail investor using the RobinHood app, you are limited to the use of a few buttons. Nowhere in your hamburger icon is the ability to shut off selling for companies like Citadel. You don’t get a pause button or a phone-a-friend option for bad trade calls.
RobinHood, on the other hand, does. They took advantage of an undisclosed wild card that allowed them to shut down buying of popular stocks to appease their dark overlords in the Citadel which are their true customers.
Users are not the customers. Users are the product. They make more money selling user information to Citadel than they do on fees or income generated by the direct use of their app.
Vlad went on to claim that there was no conflict of interest between their relationship with Citadel and their user base, but it actually couldn’t be more apparent of a conflict. Citadel was trying to short what the app users wanted to buy and RobinHood stopped them from buying it so that they could fulfill a regulatory condition.
There was a moment in the hearing where Vlad spoke about welcoming regulations should the committee decide on them. The Citadel CEO Ken Griffin shared a similar sentiment. That gave me pause. Why should they be so welcoming of regulations? Could it be that it is advantageous to them to lure amateur investors into a game that they don’t know the rules to? After all, it was the…