All-In with Chamath, Jason, Sacks & Friedberg - E22: Reflecting on the Robinhood situation with Bestie Guestie Vlad Tenev

Episode Date: February 13, 2021

Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg https://twitter.com/vladtenev Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/MikeSylvan Show Notes: 0:00 Bestie intro, congrats to Friedberg on a big beak wet 1:44 Jason intros Vlad Tenev 2:48 Vlad fields questions on Robinhood's choice to stop the buying of $GME, his CNBC appearance, self-clearing, liquidity & more 11:02 Allowing access to margin, Robinhood's prior SEC fines, Robinhood accounts that go bankrupt, debunking conspiracy theories, WallStreetBets & more 21:57 Should there be more transparency in the financial markets? Will Robinhood's IPO shares be sold to their retail users? What will they change internally going forward, and how would they have handled the meme stocks situation differently? 31:04 Vlad tells the real story of Jason investing & signs off 33:51 Vlad's returns to answer more questions on users that lost everything, future of payment for order flow & more 41:36 Debriefing Vlad's performance

Now wait, Vlad, you have to turn your camera off and then I'm gonna do my little bit where the bestie-guestie door not so no Jason No, let's like you silly. This is silly. Here we go. I can do it. It's very easy for me. Don't worry about it Don't worry about this guy's don't want to do it. They don't like my they don't like my bets Three two Rainman David Hey everybody, hey everybody, welcome to another episode of The All in Podcast with us again, the queen of Kenyye himself. David Friedberg, the rain man, definitely counting cards. Yeah.

Burn baby. David sacks is with us. Chamoth Polyhapa, Tia, the dictated end by the way, go ahead, Jacob. I'm Jake out. AKA baby seals. Jake out, could you take longer with the intros? I mean, this is like, this is like your one moment to shine like the intro.

Fuckin' torture. I know. I like to do running in the... I'm branding you guys as characters on the show. I do wanna give a big shout out and congratulations for David Freiberg, Wedding is Beak in a big way. The story, by the way, we should actually have founder, crazy founder stories, and we should have

Freiberg tell the story of Metro Mile, but it closed its SPAC transaction and went public, and it's doing great, and congratulations to you. Thank you, thanks guys. Well, golf club, look at the support of Clemander. Thank you, thank you. Very nice. And joining us this week as our second bestie guestie after a triumphant performance by Dremon Green, on the last All-In podcast is Vlad Teniv,

who is the co-founder and CEO of a new startup. We wanted to introduce everybody too. It's called Robinhood. Flat tell everybody what is Robinhood and what's the mission of this new startup you've got. Thank you for having me here hanging with you guys. Robinhood's mission is to democratize finance for all. It's somewhat new. We've been around for a little bit over five years and we have a mobile app and a website that allows customers to invest in stocks, options, crypto currencies.

We offer a debit card and a high yield savings product as well. Commission-free and with no account minimums. Vlad, I think you've done an amazing job building this company and you guys have done an amazing job democratizing access to To the ability of trade that can we fast let's fast forward to the issue that I mean this we discussed it I guess a few pods ago because there was intense interest in this I think it's our highest rated pot ever was discussing the game stop issue So you had these these traders from Wall Street, these redditors who, like you said, they perceived themselves as the heirs to occupy Wall Street. They're trading for

profit also for revenge. And then, you guys, I guess, get a call in the middle of the night from the clearinghouse and you have to freeze the buy side of the trade the next day. I guess, look fast forward to that because that was the thing that got everybody up in arms. Could you, I guess, talk to us about what happened and I'm sure you didn't want to have to freeze trading, right? But you were being compelled by this clearinghouse. Can you kind of explain what they told you and why you had to do it?

And why not just ask them to give you the order and writing so you can post it on your website. So everybody would know you didn't have a choice. Could is that something you could have done? Well, I think the challenge was that no doubt we could have communicated this a little bit better to customers, right? By the time we restricted these securities to PCO,

and it was 13 securities that we limited to cell only, that process is actually operationalized within Robinhood. We do it from time to time under various circumstances, like corporate actions. When something has a reverse stock split or something like that, we can PCO it for a little bit. So there's a button in a dashboard that you can click and automated emails get sent out. So it's an operational process that I think in hindsight, we probably should have exceptionalized to make it clearer why we were doing this just given all this world around all these meme stocks online

But by the as soon as those emails went out the conspiracy theories immediately started Started coming so my phone was blowing up with you know How could you do this? How could you be on the side of the hedge funds and of course? We're not on the side of the hedge funds. Of course, we're not on the side of the hedge funds. We're building products for our customers. We just had to do what we did to meet our deposit requirements because if we didn't do that, we would be in violation.

The consequences of that could have been much, much worse than simply halting, buying in the 13 stocks. I think that's where when you were on CNBC with Sorkin, people either thought you were obfuscating or you were lying. You know, and part of it is sort of the guts of your business is that at some point as well, you guys decided to self-clear, right? And then going into self-clearing, you become liable for every single trade that happens on your platform.

If you look back on those two ingredients, what self-clearing means? It means that, typically, you can work with a wholesaler to offload the risk. So, Vlad acts as a transaction layer and as a UI, and somebody else is responsible. At some point, these guys for economic reasons decided to take that responsibility on themselves. But when you do that, you take on the full fledg liability of the value of every single trade on behalf of your customers. Yeah, I would explain it as there's like pre-trade, right? Then the trade and then post-trade. So Robinhood obviously does pre-trade with, that's the app and what's called the introducing

broker dealer. Our market makers do the trade, so we route it to all the firms like Citadel Execution Services to Sigma, and then Robinhood Securities does the post-trade, the clearance and settlement, so we manage the exchange of cash and stocks that happens on T plus 2, so two days after the trade is made. So what was not, I mean, if you had to give that answer again, when Sorken said, you have a liquidity issue, was the answer, yes, we have a liquidity issue, and here's why, or is it still the same answer it wasn't? So I stand by what I said, and I'll explain it.

And thank you, by the way, for giving me a chance to explain it. First of all, restricting securities, restricting the buying of securities is something that pretty much every broker did to some degree during this week, right? So when you say the L word and financial services, it reminds you of Lehman Brothers, where you literally are not able to operate your business.

We met all of our deposit requirements. The new capital that we raised, the 3.4 billion, wasn't to meet our ongoing deposit requirements. We had met them and in order to relax them and eventually unrestrict them, we needed to raise some more capital and eventually have more cushion so that if we keep seeing the type of growth

that we kept seeing, we didn't have to impose position limits again. So I stand by what I said, I think if you describe that as the L word, pretty much every broker would have had that issue. And I think at that point, the word kind of loses its meaning and the gacha factor that the journalists are trying to get out of it. Do you think that the risk in the business went up when you decided to self-clear, or would this risk have been the same if you work through a wholesaler?

Well, I think a lot of the other brokers who relied on clearing firms had the same issue. There's firms like Apex Clearing, which has introducing brokers, a cash app, for example, clears through a third party as well. And they all had this issue. And of course, their response was, they kind of threw their clearing firm under the bus. So obviously we're not gonna do that

because our clearing firm is Robinhood Securities, but I think understanding the space a little bit better since Robinhood Securities is, you know, a subsidiary of my company, I realized these clearing firms had to do what they did. Like, there's no, it's not negotiable to meet your deposit requirements. Of course, we can ask, what can we do? Are these deposit requirements sensical? What can we do to drive change in the system? And I think that's where my... Who sets those requirements?

What's that? Who sets those requirements? That's the clearing house, right? Is that the DTCC? Yeah, it's the DTCC, and a lot of this stuff is actually spelled out in Dodd, Frank. So if you look at Dodd, Frank, you'll see descriptions of the bar charge and the various special charges there. But I do think one thing that I'm very excited about is, you know, not going beyond just

talking about our problems, right? We can, I've talked about our problems a lot, but talking about solutions and how we can create a better financial system in the future. And I really think if you understand the underbelly of what T plus 2 settlement is, you immediately ask yourself, why aren't we settling trades in real time? And I wrote a post on that, I had a tweet storm. I'd also say some of the feedback that I've gotten is, here's Vlad from Robinhood telling us about trying to change T plus 2 so that he can lower his deposit requirements. I think there's lots of other systemic issues that fall out of that. In particular, right now you can short sell more stock than the shares that are outstanding.

Some of these stocks had 140% short interest. So more shares were shorted than actually outstanding. And I just think that's pathological. And it stems from the fact that these shares are tracked on pieces of paper. So they're basically not tracked. And someone can, I can lend you my shares. You can short them. The person that's buying them from you

can lend them again, and you can do that multiple times, and you end up with this situation that could destabilize the financial markets, right? So, okay, so T plus, moving from T plus to T plus zero, that's one issue. Where do you think margin? Yeah, that's what I was gonna ask. Where is your margin? What Where do you think margin? That's what I was going to ask.

Where is your margin? What's your thoughts on margin? Yeah. Well, so margin wasn't involved in this particular situation. In fact, there was an escalation path, not a lot of people noticed until Thursday, but pretty much all the brokers, including Robinhood, were ratcheting up the margin requirements for all of these securities until they got to 100%. So by the beginning of the week, they were pretty much all at 100%, which means you can't

use margin to buy them. You have to have them 100% covered. So do you guys have a more specific question on margin? Well, I meant more like... I meant more like, so for example, I think it's true, but you tell me if this is not true. You guys paid like a $65 million fine to the SEC for game-of-fying Robinhood, right? And not exactly true, but go ahead. Okay, do you want to just tell us what the truth is?

Yeah, well, so the fine wasn't for game-ifying Robinhood. It was for payment for order flow and business model related things. The gamification one is the Massachusetts securities, securities one, which is a separate thing. It looked on the SEC thing. We're a fast growing company. We obviously scaled a lot between the period in question.

Obviously, the Securities and Exchange Commission felt like we could have done things better. And I own that. I think that we're fine being held to higher standards. We have to hold ourselves to higher standards. And what we can do is just do some of the things we've done. Staff up our compliance team, staff up our legal team. We brought on a new chief legal officer who's a former SEC commissioner,

two new chief compliance officers for Robinhood Securities and Financial who had decades of experience. And the level to which we're investing in compliance, I mean, the goal is to build the finest legal and compliance team that the financial industry has seen. Let me tie it back to what we were talking about before. So do you think that it's okay if we're trying to build a generation of investors, to give them access to margin as easily as some apps including Robinhood does,

and then separately allows them to trade highly transactional, high-vol instruments like options on top of that with margin. What do you think about that just as a general philosophy? Forget business building for a second. Well, and then also can you say what the margin you allow is for a new account? Because I don't think people understand what that is, maybe a little definition there. Well, there's a couple of things I want to clear up. Number one, you can't trade options on margin.

So options are all fully paid for, right? Margin is not suitable for everyone. I'll admit that you have to understand it. And you also have to be a Robinhood. I'll admit that you have to understand it. And you also have to be a Robinhood Gold customer, which means you have to sign up and pay five dollars a month. Most brokers don't gate margin behind a premium offering. So we're already a little bit more restrictive on that front. You have to have $2,000 in your account

before you can borrow. And in December, we did lower our margin rates to 2.5%, which is a very competitive low rate. But let me tell you a use case for margin that I actually think is quite powerful. So obviously, one use case is the typical one of buying more stock with your money. But if you build a large portfolio, you can actually use margin as a line of credit. And we offer this feature with our debit card. You can turn on what's called margin spending. And what that means is if you invest in your portfolio, you can borrow collateralized by your portfolio at a very low rate, which is

one tenth of what you would borrow through a credit card. So I actually think it's a powerful tool. Certainly, customers have to understand it and be suitable for it, but it unlocks the type of borrowing, not just for buying stocks, but for meeting your daily purchasing needs that, I think, is very useful. If somebody puts $2,000 in blood, can they trade $4,000, $6,000, $8,000, and does it matter what equities they're holding? How does it work? Yeah, the actual calculations are... There's no blanket formula I can give you because it does depend on the securities that you buy.

So, the example I gave was, for example, GME and some of these other meme stocks. We raised the requirement on those to 100%. So those have to be fully paid for. Other stocks have an initial requirement as low as 25%. If it's one that is deemed by the operational staff in our processes is not being super volatile. It can go in between. So 25% initial requirement all the way up to 100%. So you can trade four times your money if it's a really blue chip secure stock. More or less, yeah, with some nuance around that.

You know, time and again, Vlad, there's studies that show that it's really difficult to beat the market and make money, you know, trading in an efficient market. Like the market we have for stocks or options or what have you. There's a lot of players, there's a lot of liquidity, there's a lot of people with information, it's, you know, these great fund managers over time under perform, just the S&P, right? And, you know, I think I mentioned this when we had that pod a few ago that I was involved in a Forex trading company and 60, 60% of accounts eventually ran out of money. Can you share with us what percent of Robinhood accounts run out of money? And, you know, do we mask generally, and I'm not accusing Robin Hood specifically of this, but do we mask

the idea of investing in businesses as a way of kind of highlight, of a way of hiding that people are really just using this to trade in and out and try and make money in the short term. And ultimately, the majority of them end up losing most of their money because the fees and the spread and the margin or whatever it is that kind of adds up wipes out the account. That's what I saw at this Forex company I was involved in. Can you share with us in a very candid way how many accounts do you eventually go bankrupt at Robinhood and how much of that do you really see?

First of all, I'd say Forex is a little bit different because the leverage you get in Forex is orders of magnitude. I'll admit to that, it was like 10 to 50 to one leverage. So you're totally right. Yes, 100%. So I do think the businesses are a little bit different. Most of our customers don't use leverage. Most of our customers aren't active traders or trading

options. And if you look at some of the features that we've rolled out, the theme of this year has been, how do you turn a first-time investor into a long-term investor? So, fractional shares, recurring investments, drip. These tools allow someone to create a diversified portfolio of individual stocks and recurrently buy into them over time. But is that the majority of users today or the minority, you know, how many accounts do you see kind of cycle down to zero over what period of time? I think a very small percentage of accounts have that

have that property. I mean, I think if you look back in 2020, we had a huge increase in growth and interest in investing right at the bottom of the market crash in March. And I think people have taken advantage of that and our customers in general have benefited from the recovery very, very significantly. So I wouldn't, I would reject the meme that, you know, Robinhood customers are active traders that are just turning their accounts and losing all of their money. That's just simply not what we're seeing.

I know Saks has a question, but one question I had with the conspiracy theories that I would just love to hear like a yes-no-to. Did Citadel call you and say stop this madness because they had exposure through one of their hedge funds with GameStop and did Sequoia call you and say, hey, stop this madness because they had exposure through one of their hedge funds with GameStop and did Sequoia call you and say, hey, stop this madness or Joe Biden, you forgot the White House one. No, no, this was a formulaic decision made by Robinhood Securities due to the stuff for quality. So Sid Delt didn't call and ask, Sequoia didn't call and ask. Did the SEC call you and say this has to stop? No.

But the clearing house did, right? Yeah, well, they called and they said, hear the deposit requirements, and we worked with them to lower the risk so that we could meet the deposit requirement. Got it. And so just to just make a couple of that. So at the same time, that was happening.

And I know this wasn't Robin Hood, this is not your company, but Discord and Reddit were receiving reports that the Wall Street Bet's forum was engaged in hate speech. And there was an organized effort to get them censored and taken down and Discord basically fell for it and took down Wall Street Bet's Reddit to their credit, did not. Do you have a take on what happened there? And I mean, I assume you don't think Wall Street Best was engaged in hate speech.

Well, so that happened Wednesday, I believe. And yeah, we were watching it. It was first, it was like, oh wow, discord, discord shut down. And then I think Wall Street Bets went dark on Reddit for a little bit as well, but I'm not quite sure of the reasoning behind that. Look, I mean, I disavow hate speech, misinformation. I'm not judging which of the posts are hate speech or not. I think that's the social media companies that should take a look at that.

The mods, I think the mods closed down Reddit for a little bit of then turned it back on. Yeah, I mean, a lot of these things get triggered if 10 people reported at the same time, it just, it sets up. Well, it seems certain. It's made that, yeah, it seems to me that, and certainly this is, if you wanna call it

a conspiracy theory, it seemed like you had this Wall Street Betts group, they were on one side of the trade. You had these Wall Street hedge funds that are on the other side of the trade. And there was an effort to weaponize the speech rules of Reddit and Discord to cut off the lines of communication of Wall Street Betts. Because the only way that Wall Street Betts, as a decentralized group of millions of traders, can stick together and compete with these hedge funds as if they can communicate with each other by these services.

And so, you know, it seems like there was an organized effort to try and take them down at the exact same time that they were frozen out of the buy side of the trade. Vlad, do you think that there should be more transparency in the financial markets, meaning everything from payment for order flow, how much money companies make lending out their stock, which company is short, which stock, which company is long, which stock on a more frequent basis, how much margin people are running. Do you think we should move to perfect transparency in the financial markets? I do think that there should be more transparency and I'm glad you brought up payment

for order flow because it's something that I'm trying to take on. You guys might have noticed, I published a post on payment for order flow. I started a tweet storm that is meant to just start the conversation around it. I want to understand kind of the misconceptions and the theories and knock them out one by one. And I think that'll lead to some positive discourse around it, I want to understand kind of the misconceptions and the theories and knock them out one by one. And I think that'll lead to some positive discourse around it. And there certainly might be things that will have to change. And I think the first step is actually engaging in the conversation and kind of connecting the people that understand the details with the people that have issues with it. And I don't think that's been happening enough, so for sure.

But what about stuff like margin, shorting, you know, short, like do you think that we should move all of this stuff so that it's just out, out front for everybody to see? Well, I think if we migrate to a better settlement infrastructure and move to real time settlement, you get a lot of that stuff for free, right? So you do get, and I know a lot of the crypto people came out after I published my post and said,

crypto solves this, you could just put it on a blockchain and everyone could see publicly what's going on and which shares are being held short, where they are, who's owning them. So I think I would be in favor of more transparency. I'm not sure at what point there's sort of like negative secondary effects. I haven't kind of unspunned the thread fully, but I think we can we can keep taking it one step at a time and see more transparency generally, I think, is much better. Hey, Vlad, when you guys go public, you've talked about having a listing at some point here

soon. Why would you not have all of your shares sold in the IPO through Robinhood to your retail users? Why would you sell any shares to institutional investors? Wow. Good question. It is an interesting question. It's one that I probably, that's probably the one I can't give too much detail on.

Hopefully, you guys understand. My recommendation, if you're going to democratize access, do it all the way. Fuck the hedge funds and the big guys. If that's the point, then you give retail equal access in all these transactions. As you know, institutions get all the access. Well, you have something interesting to find the access and the retail is like interesting. Well, you have something interesting, right? Have your entire listing done through retail?

It would be a game-changing transaction. Yeah, so, I mean, a lot of this, it's really interesting that this turned into, you know, individuals versus hedge funds, because I think that's a really powerful story. But you also have large institutions like Fidelity that are holders of all these stocks, right? You have individuals on a lot of platforms that were short selling them as well, not Robinhood because Robinhood actually doesn't allow short selling by individuals, but a lot of the other brokers do.

And you have, you add statistics, statistics coming out that actually show retail versus institutional, and and you know there was some counterintuitive results. So I think if you actually look deep into the plumbing, the story of you know long individuals, short institutions on opposite sides, I think there's a little bit more nuance to it than that. Flat, if you had to do it over or actually forget about the past, think about the future, what do you change inside the company? Well, let's see. I think the 3.4 billion in extra capital certainly helps. I think I'm very proud of the transition that we made between Thursday and Friday.

So Thursday we had the blunt hammer of PCOing these stocks, right, which obviously was not ideal. By Friday we had moved to a much more sophisticated system where in today we adjust the position limits in, it was up to 50 stocks and we published that on our website. So that gave us a lot more granular control over it and is a better system and we're going to only improve that and kind of take the learnings to other parts of the business. So I think the great thing about these sorts of crises is sort of months and years worth of work get compressed and people are just like super aligned on the key priorities we need to do to move the business forward

and we saw that. And then the third thing I'd put is just maybe you guys have seen, you know, I feel like I've evolved as the chief executive and as a leader. I didn't use to be on social media telling our story very much, but I'm out there trying to encourage more transparency. I would say much better today than with Elon. Much better with Elon than Sorkin. So progress has been made. I have just a basic question. I know we got to wrap soon.

When things get super heated and you have this viral momentum where I don't know how many people tried to sign up on that day, but maybe you could give us an idea. On that Wednesday or Thursday, was it five figures, six figures or seven figures worth of new accounts. Why not throttle the new accounts and say, Hey, where you're on the wait list, we on board 10,000 people a day, your day is going to be next Thursday. So that you don't get caught in this, you know, everybody uses the fact that it's friction free to sign up to do an emotional bat in a you know, let's call it mob behavior right like

this turned into a mob and I guess some people believe it's a good mob to go up against the hedge funds but it could have equally been something you know something more deranged and even more edge cases going to happen so when that does happen and a million or ten million people sign up can't you just pause it and say we're not going to do any new accounts today? We've reached our limit. We actually did do that. So we have been pausing new account approvals, often on depending on on the load. And, you know, customers have been experiencing in some cases, short delays with account approvals. Obviously not an ideal solution from our standpoint. But, you know,

if we have to do that, we will do it and we have done it. How many people signed up on that Wednesday, like just ballpark? Like, was it hundreds of thousands, millions? Jason, are we are we running an ad for Robinhood stop? No, I'm just claspy. Slat. None of us cares. Slat. Last question.

Hit me. Hey, listen, if you had to pick two different CEOs reactions to how you dealt with it, let's say Tim Cook on one end of the spectrum and Zuck on the other, how do you think they would score what Robin Hood did and what they are doing? Tim Cook Zuckerberg. You know, I'm not sure. I think that I'm not sure. I think that I think I'm proud of how the firm navigated this. I think obviously there's ways to improve upon it. I think that, you know, anytime you get a phone call in the middle of the night saying you have to put up $3 billion all sorts of things run through your head.

I've had it happen. I know. I was just money from the cage for poker. I got a lot of people reaching out to me, which was amazing. If you had to do it over again, why not just post a blog that morning saying, Hey, we got to call in middle of the night. We have to do this. Is that the thing you do over again? No, because it's only his own company under the bus. He'd have to say, Robinhood Securities

is telling Robinhood the broker to post this money because Robinhood Securities is being told by their downstream clearing. So it's like you're in a different position. But you're saying it now, so better to say it at the time it all happened and it would have diffused the whole crisis, right? Well, first of all, I'm not throwing anyone under the bus. We did, the team did what they had to do. I don't think there was any way to navigate that differently. I think the automated emails that went out to customers saying your stocks are, you're restricted from buying these stocks. Probably could have been handled a little bit better. We probably could have offered more detail in that.

With the foresight that maybe customers would think that a hedge fund forced us to do it or something like that. So certainly, there's areas we can improve upon across the board. And one an early investor called me throughout this and said, hey, chin up, navigating a crisis successfully unlocks the next level of value creation for the company.

And I've had that in mind the entire time, and I'm just doing what I can to make that for sure a reality. Both for Robin Hood and for the financial system. I think that this could lead to some really positive change industry-wide. Yeah, and this one last softball here. This is not about what happened that with GameStop. We've had a debate on this pod.

It got kind of heated between Jamath and Jason about the nature of Jason's investment in Robinhood. Can you tell us? Can you tell us your side of the story of what happened at Antonio's nut house? Okay. And how much how much stumbling was involved precisely? Okay. I'm very glad you brought this up because I've been meaning to call Jason out on it. He has this great story of how, you know, we met at Antonio's nut house.

And he wrote a check. I think the real story is that on Robin Hood launch day, which was a Saturday, and we violated every rule of PR and marketing by launching it inadvertently on a Saturday. I got a reach out from launch, who was one of the first outlets to cover our launch on Saturday. And Jason's friend Simon, ex-employee who ended up running social for us for a bit, was a big fan of Robinhood. So he joined us as kind of our first social person. He introduced me to Jason.

I met Jason at Sequoia, Jason, where you agreed to invest. And then six months later, we met at Antonio's nut house when we were raising our series A. And I think you gave me the advice to go with index ventures. No, I know I said Sequoia all the way. I promise, Michael Moritz, Doug Leone, whoever's watching, I told him what to call it. No, Sequoia was great. They unfortunately passed on our series A

as did a lot of other funds. Yeah, I'll try. All right, listen, thanks for coming on the pod. We really appreciate you taking the time and continued success. And... Well, I'm really glad we didn't give you a job offer back in 2008.

Sounds like it was the right move for you. Funny how things worked out. Yeah, apparently I interviewed him in give you a job offer back in 2008. Sounds like it was the right move for you. Funny how things worked out. Yeah, apparently I interviewed him in 2008 for a job and he didn't get the job. It was you and Alex Michalka. As a great guy. Was my main interviewer, but it's funny. I graduated with a math degree, right?

I was doing pure math, which in 2008 made me unemployable. We were the only people that would interview me. Yeah. Everyone else was like, where's your computer science degree can you code? So I ended up going to math grad school, which was one of the few options that I had and ended up dropping out and here I am.

So funny how things work. Well, good for you. All right, continued success. And thanks for coming on the pod. We'll see you soon. Thanks, Vlad. Thanks for having me. Wave, Vlad's back.

Wave, Vlad's back. Sorry, I thought I was supposed to leave. I didn't know if you guys were using. Well, you can stay, I was saying, you can stay, I was saying, after a year of Jason asking us to run ads, he's found a way of trying to make this a 45-minute infomercial for Robin. Absolutely.

Listen, I'm right or die. Vlad, you know that. I'm right or die with my founders. I didn't ask for that, and I don't need it. We're just trying to keep everything up and let all the people, safe, looting, who have been banging on our door. How much have you been sleeping, Vlad? Have you been able to sleep?

I mean, this got to be exhausting. Oh my God. Really? Can you ask him something like at least semi fucking challenging? Honestly. That's not funny. That's why you guys are here. If you're walking down the road and a Robin Hood customer, this is a tough one.

I'm sorry, you thought you were over this, but you logged yourself back in. So and a Robin Hood customer that lost all this money when they got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say.

I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say.

I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things to say. I've got a lot of things say? Because I know that's a tough one to swallow. And I know that, you know, we've heard the story around what happened, but what do you say to that person?

Well, first of all, I'd be very, very empathetic. I'd probably want to understand how someone could lose money when they couldn't buy a stock at the all-time high. So I think the details around that, I mean, if you look back, and obviously this had nothing to do with the decision, right, but Thursday was the all-time high. Yeah, but the reason for that is because the ability of Wall Street bets to continue the trade was basically interrupted, right? They were engaged in a short squeeze

against these big hedge funds, and in order for this to keep driving the squeeze up and up and up, they needed it basically to be able to buy. And then once they got frozen out of all the online broker accounts, not just you guys, but all of them, that broke the trade, right But that's what they were so upset about is because they got locked out of the buy side of the trade. They weren't locked out of the sell side, right? They got locked out of the buy side, and that allowed the big hedge funds 24 hours to regroup and cover the trade, the price went down,

and that basically cracked the whole thing. Right? Well, I'm not sure about the exact details there on the hedge fund side or what happened. Look, what I can say is we're gonna do our best to make sure that we get better and we serve our customers whenever they wanna buy stocks and we'll do that and we're gonna get better and better

every day. And the truth is, if you had had the money in the bank account for DTCC to be compliant, you would have been. Like you weren't trying, I mean, you're in the business of letting people trade. Without question, yeah. You make nothing if people stop trading. You need people to trade. It's a core of the business, right?

Yeah, this wasn't, you know, a value judgment or some moral stance and we weren't pressured into doing it by anything other than our regulatory deposit requirements. What do you think is the future of payment for order flow and revenue sharing on the ways in which, like, meaning, how much do you think of that payment for order flow revenue should you share with customers? Yeah, that's a good question. I mean, this is all highly regulated. And it's, it's become the industry standard business model, right? So I'm not sure we're, we're excited to have a conversation about it. I do think exchanges are here to

stay. Market making is here to stay. Market making is here to stay. Market making is a profitable enterprise. And so some level of revenue share between the market maker and the broker makes sense. And it is regulated. So I'm not quite sure what if any changes need to come. But hopefully this will be part of the conversation that we can help create and work through.

And do you not think so? I think part of the problem is just the opacity of it. It's kind of like interchange. Does anyone know that interchange is this sort of like hidden piece of revenue every time you transact with a debit card or a credit card? It's sort of analogous in a way, right? Well, I think more people do just because

the technology companies that have come around, like Stripe and others will eventually just try to take it to zero. And so if anything, I think what the business model, or at least the business strategy of all these companies is when you find, to your point, these opaque pools of revenue, the innovation is just to give consumers power by taking these costs to zero.

If you've had decided tomorrow to do Robinhood Pro, you know, higher-level than gold and charge 50 bucks a month for 50 trades and then $5 each trade after, that would solve anybody's misgivings about this, right? You could just offer both options. Well, I think it's payment for order flow enabled commission free trading, right? It helps cover the costs of the business that leads to our ability to offer commission free trading. And moreover, it allows smaller investors to participate.

So certainly, I think that model would work, but the consequence would be smaller investors would not benefit. If the option is there, it'd be like Facebook saying, we have an option for you to pay and not see ads and be tracked. It would just be great option. What do you think is the difference between investing and trading and what do you think has to happen so that, you know, back to where you started.

If you want people to close the inequality gap, how do you allow them to do it trading versus investing? Well, I think the difference between trading and investing, investing is a little bit more about accumulation. So typically you're buying more stock and building up positions over time. Trading comes into play, I think, when you're selling, right? When you're selling sort of strategically and you're doing it not driven by outside needs for the capital but more for sort of like intrinsic needs. So I think the question is

would we would we ever prevent people from selling? Ideally not. I mean people have various needs that that they could have for getting out of positions. And I think as a platform, we have to allow for that. Awesome. Your PR people are literally going to come breaking your glass in your house. Your PR person is literally running from HQ. She's going to be starting back on the back window. You cannot be on this pod. Great job, Vlad. And remember, use the order code, bestie and get your kind of your first free month. Well, thanks for having me, gentlemen. All right. Thanks, man. Great job. Take care. Thanks for answering our questions.

Yeah. Thank you for coming. You're going to log back in in two minutes, right? Come back for the Chess and booted and Gavin News and recall, dudes. You're PR people, will we delight it if you comment on that? Yeah. Are we going to do a debrief? The debrief, for my opinion, is that I think that they have to really tighten two things. One is they need to make a decision

how do they wanna make money? Because I think this is the third time these issues have come up. It's probably not gonna be the last and because there's gonna be more market volatility not less. And so you just gotta decide how you wanna make money because there is no amount of money

that's possible if you're gonna build a successful business and run into these margin constraints, right? You can't, there there is no amount of money that's possible if you're going to build a successful business and run into these margin constraints, right? You can't, there's just no amount of money that you could have. Meaning, if you look at the folks that didn't get called were folks that have like Schwab accounts, why? Because Schwab is investing. And if you look at the folks that did have these margin issues because Robinhood wasn't the only one, they're all the trading and sort of like high frequency shops. And so, you know, that's a decision.

And then it's back to what David said, which is like once you make a decision, you have to be able to tell people, like this is what you wanna stand for. And you have to have the right internal controls and governance. And so, you know, if you get these things right, maybe they can be on the other side of it.

Otherwise, they're just gonna continually step on this stuff. And I think that the, you know, if folks lose enough money, they're gonna going to continually step on this stuff. And I think that the, you know, if folks lose enough money, they're going to be pretty upset. I think sounded to be like, David Freiburg, you had a good point about offering the Robin Hood consumer basically ability to buy the shares. I think 100% of it should go to the the retail investors. I totally say no. And he kind of, I kind of got the inclination that he was gonna do that. 100% he will not. Yeah, this came out in the past where he said they were gonna offer

some of the IPO shares to Robin Hood customers. And so that was a few months ago. I think I said publicly on Twitter, why don't you offer all your shares to IPO customers? Like why take any of them direct to my situation? I mean, could he technically become a clearinghouse and IPO people? But then what would be like a partnership in it?

Yeah, like why don't you just take, you know, if fidelity wants to buy shares, let them buy shares on the open market, like all the retail customers are forced to do. And then the fidelity argument is, well, we're buying $50, $100 million blocks at a time. So we don't want to have to be in the market during that. But the marginal cost of buying a single share

versus the marginal cost of buying a million shares is much, much higher. And that's the challenge with retail access in financial markets that Robinhood has set out to solve as have many others. And it would be a really powerful statement if they said, you know what, we're going to show the world that the market can all go direct and be efficient

and actually make all of their IPO shares available. And then you know what, if the big block trade guys but we're going to show the world that the market can all go direct and be efficient and actually make all of their IPO shares available. And then you know what, if the big block trade guys want to buy some, go ahead and buy it from the retail guys in the open market. Or do 50-50. You know, offer everybody who's a Robinhood shareholder. I just think that they would, if they could fill their demand, their demand on their book for their IPO from retail, do that and let anyone else, let F fidelity sign up for Robinhood account by their shares through Robinhood.

You know, like the fact is the big block buyers always get a discount, right? They pay wholesale pricing in these markets. And that's also part of why it's so difficult for retail to actually find a footing. And so it would be a really powerful statement for them to kind of go all the way. Sure. I think it's almost certain they're gonna give some of the shares available in the IPO through to Robinhood customers. It's a great kind of publicity point, but it would be really powerful

if they shifted the whole thing. I mean, years ago when I was at Google and we did the IPO, I don't know if you guys remember this, but it was the first time we tried to do this Dutch auction. So it was a reverse price. So anyone, any individual, any retailer, and retail customer, and any institution could bid on Google shares, and then there was a reverse price. So anyone, any individual, any retailer, and retail customer, and any institution could bid on Google shares. And then there was a clearing price that was hidden.

Everyone got their shares at the same time. So there wasn't this order book that was built by going to the big guys that the banks all know and love, like Fidelity and T-Roll and so on, selling a big discounted shares. It was a true market auction. And the direct listing is the new model for this that totally democratizes access to the shares, creates fair and transparent pricing for everyone.

And so you don't end up with these discounted shares that pop 80% on day one. Okay, Saks, what is your debrief on the Vlad appearance? So I think Vlad did a pretty good job handling our questions answering some. B-minus? Answering some deflecting some. I think that, look, I think, I don't think Vlad's a bad guy.

I think he's a good guy. I think Robin Hood wanted to do the right thing. I don't think they had any reason to want to freeze their own users out of their accounts. I don't think they wanted to do what they did. I think that there was a little bit of a blind spot there on his part in terms of understanding the consequences of that freeze out, right? Because it did break the buy side of the trade

for Wall Street bets, and then that basically allowed the hedge funds to recover, and that was that moment, you know, and so that was a big deal. I think the consequences of that decision were a big deal. But it's a counterfactual, right? We don't know. We'll never know if that was... I think we know.

Of course, look, it was that Thursday where the short squeeze ended because Wall Street bets couldn't keep buying. They couldn't keep engineering their side of the trade. Obviously, that's why it cracked, right? And Robin, who was a big part of that whole thing collapsing, now it was going to collapse at some point. There's no questions. The air was going to go out of the balloon.

Right. But we want to go out to five or six hundred is the question. Yeah, but but how much money the hedge funds were going to lose whether they're going to get bust out of the game for good and who is going to let holding the bag. Those were all questions that got answered in a completely different way because Robin Hood did what it did. Now, I don't believe that they had a choice. I think they did it because they were forced to do it. But it did have huge consequences. I thought he did. He's doing a better and better job explaining this highly technical stuff. Obviously, if they can't talk about their IPO, that does tell you certain things. I don't

have any insight information. But he obviously, there's thing, what I get from this is there are things he can talk about, and there are things he can't talk about. There might be either things with the IPL or things with confidentiality between them and some of these parties. I have a feeling people are not allowed to talk about this DTCC and what goes on there because there might be a lot of that. I would have liked that that was an area where I really wanted to hear more details and get more clarity because I mean, I believe that look the order came down in the middle of the night from the DTCC right and so that's why I kept asking why wouldn't you just say to the DTCC give that order out to talk about them. Okay fair enough. That's what I'm reading into it and I don't think I think it might be one of these non-disclosures

where you can't mention the non-disclosure which we've all involved in. Maybe but but but see that was the heart of my question is if you're ordered by somebody in the middle of the night to take an action that is adversarial to your own users, well, I would ask them for that in writing and post it on your website, post it on your blog, so to show that you don't have a choice. I mean, I believe that he didn't have a choice, but why didn't he say that from the very beginning, right?

I mean, that's what caused all the problems for them. Yeah, all right. There you have folks, what caused all the problems for them. Yeah. All right. There you have folks, everybody go to thesinnigate.com slash all in. Boys, I love you. I gotta go. Great job.

Talk to you soon. Talk to you guys later. Love you guys. Love you, Bessney. All right, we'll see you all next time. Bye-bye. We'll let your winners ride. Rainman, David, Sack.

I'm going to win. And it's said we open source it to the beach. I'm going to the beach. What? What? What? What? What? What? What? What?

What? What? What? What? What? What? What? What?

What? What? What? What? What? What? What? What? What? Oh, go through that. That's my dog taking it away. She's driving away. She's so sexy. Get it off. Oh, man. My ham is a disaster when we eat the apple.

We should all just get a room and just have one big huge orange because they're all just like this like sexual tension that we just need to release that out. What, you're that big? What, you're a beer of beef? Beef of beef. What? We need to get my cheese on.

I'm going all in. You're a pure piece. Beep, beep, beep, beep. Good, good. We need to get merch. Cheese aren't there. I'm going on, Leigh. What? I'm going on, Leigh.