Robinhood’s Ethereum Layer-2 Network Enters Public Testnet Phase

In brief

• Robinhood Chain is entering a public testnet phase.
• The exchange wants developers to experiment with tokenized assets.
• The company introduced stock tokens in June.

Robinhood said on Tuesday that developers will begin experimenting with applications on its Ethereum layer-2 network, alongside the debut of a public testnet for Robinhood Chain. That will create a low-stakes environment for developers to assess the network’s technical merits as it’s folded into the retail brokerage’s business, according to a press release. Robinhood’s vision for embracing decentralized finance is broad, but the company is particularly interested in how compatible so-called stock tokens are with traditional workflows, according to Johann Kerbrat, senior vice president and general manager of Robinhood Crypto.

“We don’t want to make it another [layer-2 network] that is just about scaling,” he told Decrypt. “We’re actually using this underlying technology to actually rebuild some of our systems.” Layer-2 networks have been traditionally viewed as a way to improve Ethereum’s overall performance, yet Robinhood is embracing the technology as a way to expand its services, while carving out its own corner of the broader crypto ecosystem to engage customers in. Kerbrat said the testnet phase is aimed at developers familiar with building products like perpetual futures exchanges and lending platforms, but also institutions, who may be interested in eventually using Robinhood’s networks to offer products of their own. Eight months ago, the company rolled out stock tokens for customers in Europe, which provide investors with synthetic exposure to U.S. stocks, as well as private companies. Kebrat said Robinhood wants to expand that service to as many jurisdictions as possible. 

Still, investors currently have limited access to tokenized assets in the U.S., with the Securities and Exchange Commission currently crafting guidance around digital representations of real-world assets. Coinbase is among crypto-natives racing to bring similar products to market. “We are going to be pretty careful about the rollouts,” Kerbrat said. Following the stock tokens rollout last year, Kerbrat described the testnet phase as a critical step. It will inform the company’s vision for facilitating round-the-clock trading, with crypto serving as a backbone, he said. “We’re using [Robinhood Chain] for stock token trading, which is really the way to mimic what we are doing in the U.S.,” he added. “We are not stopping at crypto trading.” Coinbase and Kraken have developed layer-2 networks using a tech stack offered by OP Labs, the team behind Optimism. Robinhood is taking a different approach, by modeling its network on an Ethereum scaling network created by Offchain Labs called Arbitrum. “With Arbitrum’s developer-friendly technology, Robinhood Chain is well-positioned to help the industry deliver the next chapter of tokenization,” Offchain Labs co-founder and CEO Steven Goldfeder said in a statement.