Keith Gill (aka “Roaring Kitty”) returned to social media this summer. Three years earlier, the Reddit influencer had helped sparked a meme stocks craze among retail investors that led to the GameStop stock short squeeze. The surge in stock price was a disaster for online brokerage platform Robinhood: The company halted the trading of GameStop and other stocks in January 2021 for a day and then only let consumers close out trades on the stock, barring them from placing new ones. Robinhood and its cofounder and CEO, Vlad Tenev, faced accusations of market manipulation by angry retail investors. Roaring Kitty, meanwhile, went quiet and stopped posting.
Now he’s back, and he’s taken a huge stake in GameStop once again. But Tenev isn’t worried. The company, he says, is in a different place. For one, it’s now publicly traded. After its July 2021 IPO, it’s seen steady growth. In 2023, it hit a record $1.9 billion in revenue, up 37% from 2023, and total net revenues increased 40% year-over-year in Q2 2024.
Tenev has been on a mission to build the company into, what he calls a “trusted, important financial institution,” and leave behind its meme stock associations. To do this, the platform has expanded its offerings to appeal to an audience beyond day traders, launching financial tools like credit cards and retirement accounts. And Tenev is now focused as much on crypto regulation as he is retail investing.
Tenev recently stopped by Most Innovative Companies to talk about investing in AI, the collapse of Sam Bankman-Fried’s FTX, and why he thinks crypto is the next frontier for the financial industry. We started by asking him about Roaring Kitty’s return.
Back in 2021, there was a meme stocks frenzy. Companies like GameStop and AMC saw their shares skyrocket, retail investors piled in. Earlier this year, there was a resurgence of meme stocks, and Roaring Kitty returned to YouTube. Did you get flashbacks?
For us it was an opportunity to show that we’re a different company than back in 2021. We were a private company then. This time around, I saw an opportunity to show how far Robinhood had come as a business [in terms of] making investments in the infrastructure, and having a strong balance sheet.
Robinhood has faced criticism that the app’s design incentivizes compulsive trading. Are you ever worried about feeding retail investors’ addictions?
I think the gamification narrative is one that was planted by competitors. If you say it enough, people start repeating it. Our success comes from the fact that we did two things that were ignored by the incumbents. One, we lowered the cost structure to $0 a trade, and the industry followed. Before that, people were paying $7 to $10 every transaction. The other thing is we were the first mobile native platform.
I guess when people say gamification, they could be talking about the fact that Robinhood makes it so easy to trade on your phone.
I just really disagree with all of the characterizations of gamification. To think that somehow [the fact that] the trading platform was easy to use is what caused people to buy GameStop—and not the fact that GameStop was all over the news and people were talking about it on Reddit and riling each other up . . . I think that it’s kind of missing the forest [for] the trees.
The platform’s [design is] important, and making it easy to use is important, but a lot of the folks that are coming in and making these [trading] decisions have pretty strong intent.
When customers lose money, or when something goes wrong, do they get angry at you?
In financial services, especially when it comes to investing and trading, there’s a natural human tendency to blame the broker in the event that something goes wrong. I’m the face of the broker. When people lose money, it can be very emotional, [but] a lot of times it’s people making bad decisions.
When people make money, it’s good and they’re responsible for it. If they’re in a situation where they lose money, the broker tends to be responsible in their minds.
Since February 2018, Robinhood has allowed users to trade cryptocurrency. But recently you received a Wells notice from the SEC, a sign that enforcement action is likely coming. The agency has argued most cryptocurrency tokens are securities and subject to its registration rules. Did you see this coming?
It wasn’t a huge surprise because we had seen a string of Wells notices applied to crypto companies of all kinds. The SEC was taking this stance publicly, as well as privately, for a while, that every cryptocurrency other than Bitcoin was a security. That’s evolved a little bit. Now, it seems that Bitcoin and Ethereum are okay and everything else is a security.
Our view is that that’s not true. There’s a lot of things that are basically identical to Bitcoin in terms of how the technology works. We have taken a careful approach. We don’t offer hundreds of coins on the platform because we want to be careful and [only] give customers access to coins that we don’t believe are securities and that are well-vetted.
What is the SEC getting wrong here?
They just want to regulate [crypto] by enforcement. I think that’s fundamentally bad for society because there’s one way to look at this, which is as an asset, but there’s another way to look at it: as a fundamental technology that just makes everything that makes things we’re already trying to do better and more efficient.
So do you think crypto shouldn’t be regulated at all?
Some regulation is better than regulation by enforcement. I point to the European Union. They’re thinking through how to do things like Initial Coin Offerings [the crypto industry’s equivalent of an IPO]. They’re regulating crypto derivatives appropriately.
I view cryptocurrency as the next step in technology applied to financial services. Financial services has kind of been a laggard in adopting new technology, but they adopted the mainframe. They adopted on-premise servers. They adopted the cloud. The next step in that transition is going to be having more and more services on public infrastructure like blockchains. You’re going to see Europe and Asia adopting it first, but the U.S. will eventually get there. We’d like it to happen sooner rather than later.
You met with Sam Bankman-Fried several times. Were you surprised when he was arrested?
I remember when I first met him, he was emphasizing how few engineers they had on the team. They had something like eight or nine engineers at the time. “We have a great team. They’re the best engineers in the world,” he told me.
I generally agree that a small group of people that are extremely talented can run circles around larger teams. But eight engineers is a very small number, and you have to do all sorts of things as a financial institution, like make sure people aren’t money laundering or deal with customer fraud. I’d ask him about this stuff and he’d be like, “This one engineer spends two to three days a week getting those systems working to deal with fraud.” And this engineer he was talking about was one year out of school or something.
It became clear they were not investing in pretty important things. We had contemplated routing to them as a counterparty but they never got through our diligence process. It wasn’t a huge surprise that they would get into trouble because they just didn’t have people working on risk management at all. But the extent of it and how quickly it all collapsed . . . I don’t think anyone could have predicted that.
The FTC has a proposed rule that would ban political bets. Robinhood has taken a stance against that. Why is that?
My thoughts on political event contracts are similar to my thoughts on crypto. There’s use in the technology, and we should try to figure out how to regulate it and not run from it. We should do that aggressively because what’s going to happen is [that this kind of betting is] going to go overseas because of the internet. We’re going to start losing to countries that are able to regulate effectively, and that’s not the position that you want to be in.
You’re involved with a new startup, Harmonic, which aims to use AI to solve complex math problems. There was a report in early August that you had been in talks with Sequoia and Index Ventures to raise money for it. Why did you start the company?
GPT 4 came out last year and I started thinking about the potential for that technology. It isn’t very good at solving complex math problems. That’s why we felt like there was an opportunity to build something that was significantly better at that. So I teamed up with Tudor Achim, who’s now the CEO of Harmonic, and we decided to start this thing.
Google has a similar initiative.
Yes. For a while investors asking this question became a running joke. “Why can’t Google just do what you’re doing and put you out of business?” The reality is that’s rarely the way that things shake out. Even DeepMind. They did Alpha Zero, which is really the foundation for a lot of these adversarial self-play models where it learns how to play chess or video games and gets to superhuman ability relatively quickly. But Alpha Zero hasn’t really been commercialized and turned into a product normal people use, despite the fact that the research advancement and technology is so amazing.
Has your investment in AI increased at Robinhood?
There’s going to be three stages of Robinhood’s adoption of AI. The first one is taking things that people were doing internally and augmenting them; that’s like integrating AI for first pass code review. The second stage is having AI augment existing products that our customers use.
The final stage is having fully autonomous financial agents. Those would be like AIs that can do work that you would need an extremely sophisticated certified financial professional to do, like a financial advisor, a tax planner, or someone helping you with trust in estate. That’s really exciting to me because previously you’d have to have a lot of money to access these kinds of people.
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