Robinhood lets 1% of 1 million applicants test drive crypto wallet for the masses

Robinhood Markets, the commission-free brokerage that set retail on fire during the pandemic, is moving to revive its popularity with its own crypto wallet.

The wallet is set to go live in beta today with 10,000 iOS customers, 1% of the more than 1 million people around the world who have joined the waiting list since May.

The launch comes in the wake of Robinhood’s pandemic heyday, when the app’s sleek and accessible interface attracted many young investors. But as the market has cooled and it has become difficult to make quick profits in stocks, the appeal of Robinhood has waned. Today, the company’s shares are down 47% year-to-date, and the app has lost 34% of monthly active users over the past year. Since going public in July 2021, it has never turned a profit, and sales in the most recent quarter fell 44% while average revenue per user fell 34% to $56. Despite its fall from grace, Robinhood is sticking to its ethos of “democratizing finance for all” by offering a similarly accessible on-ramp for customers new to crypto to access the network of blockchain applications that make up the long awaited, highly debated, promised reincarnation of the internet known as web3.

“What we’re trying to do is the same thing we did for stocks last time, where we’re removing the complexity,” says Johann Kerbrat, chief technology officer and general manager of Robinhood Crypto. “We’re going to do the same with web3, open it up to everyone and make it easy to use.”

Currently, Robinhood Wallet exclusively supports the Polygon blockchain, but the company plans to add support for other networks. The wallet is self-custodial, meaning that users’ private keys, analogous to passwords for accounts holding crypto funds, are stored on their own devices rather than relying on a third party to hold them on their behalf. In April, Robinhood introduced an in-app crypto wallet that has since been renamed Crypto Transfers. The previous product was non-custodial and only allowed users to send and receive cryptocurrencies between Robinhood accounts.

From Robinhood Wallet, which is a standalone app, users can trade and exchange cryptocurrencies without network fees. The transactions are routed through several market makers, who cover the network fees for winning the bid, corresponding to payment for order flow in the stock market. Generally, trading on decentralized exchanges can be expensive if the underlying blockchain is congested and network fees are high at the time of trading. The exchange feature is enabled through a partnership with liquidity aggregator 0x, which scans data across decentralized exchanges and market makers, then routes trades to where the best price is found. 0x also powers Coinbase’s non-fungible tokens (NFT) marketplace.

The payment for order flow (PFOF) model has drawn criticism as Robinhood may be incentivized to send orders to the market participants who will pay the most rather than the one that is best for their client. Robinhood has defended PFOF, arguing that it has benefited retail investors by making commission-free trading an industry standard. Earlier this week, Bloomberg reported that the US Securities and Exchange Commission will not ban the practice, but may adopt regulation to make it less profitable. It is unclear whether a decision around payment for order flow will extend to a similar model used across decentralized exchanges.

While the primary use of Robinhood Wallet will likely start as trading tokens through decentralized exchanges, the number of people interested in having a crypto wallet is expected to grow as new blockchain applications become popular. Currently, there are more than 37,000 decentralized applications built on Polygon alone, four times the number from the beginning of the year.

NFTs, which include digital art, and blockchain-based gaming are two industries that are bringing new demographics into crypto, and both require wallets to participate. Robinhood is looking to get ahead of the curve by creating a wallet that allows people to access decentralized applications, without the complexity currently involved. The crypto wallet is Robinhood’s first international product, offering an opportunity to expand its customer base outside of the US

“At the end of the day, we believe web3 is here to stay,” says Seong Seog Lee, Chief Product Officer of Robinhood Crypto. “We believe the use cases and applications built on web3 are going to become mainstream in the future. For now, we think decentralized commerce is the biggest use case, but as our audience grows and our use cases grow, we want our wallet to be the primary way people communicate with web3 on, especially if you’re new to crypto.”

Robinhood customers can fund their wallets directly from existing accounts. New customers can either fund with tokens from another self-custodial wallet or from a crypto exchange account. Robinhood does not charge withdrawal fees for crypto, but users must pay network fees to move tokens on-chain. It will be possible for users to store NFTs and connect to NFT marketplaces when Robinhood Wallet launches to the general public, but the feature is not available while the product is in beta.