Robinhood Now Faces 49 Lawsuits After Trading Restrictions
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Robinhood Now Faces 49 Lawsuits After Trading Restrictions

Do Robinhood's lawsuits unknowingly expose the fault lines of centralized, intermediary-ridden finance?
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Robinhood, a pioneer of commission-free stock trading, has become one of the most popular stock apps in the United States. All was well for Robinhood as they were making steady progress towards their mission of democratizing finance until the GameStop fiasco played out. It led to the filing of 49 different types of lawsuits against Robinhood. 

How Many Lawsuits is Robinhood Facing?

Robinhood is currently facing 46 putative class actions and three individual actions over trading restrictions. The firm also declared that it is facing four potential class-action lawsuits on its disclosures related to the fees it receives from other firms. 

Entities that have inquired into the dealings of Robinhood include the Securities and Exchange Commission (SEC), the attorneys general of various states, and other financial regulators over Robinhood’s decision to restrict trading on select securities.

Users got angry when Robinhood temporarily restricted its customers’ purchase of certain securities, including GameStop Corp (GME) and AMC Entertainment Holdings, Inc (AMC).

The 46 putative class actions and three individual actions filed against Robinhood Money LLC, Robinhood Financial LLC, and Robinhood Securities LLC entail a wide range of complaints. These complaints pertain to an alleged breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and other common law claims. 

Many of these complaints also come under the purview of federal securities claims, federal and state antitrust claims, federal computer fraud claims, and some state consumer protection claims based on similar factual allegations. According to the data offered by Robinhood itself, approximately seventeen of these 46 putative actions also name other broker-dealers and market makers as defendants. 

Repercussions of Robinhood’s Lawsuits

Industry experts believe that most of the allegations against Robinhood stem from the fact that it is a centralized finance platform. Those who are in charge of running the platform often tend to manipulate the way the platform works. This is done to either cater to the interests of institutions or to make the most out of a complex situation for the platform itself. 

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DeFi, decentralized finance, does not suffer from these glitches. Here, transactions are peer-to-peer and open for anyone to verify. No centralized authority or intermediary of any sort interferes in these dealings. One of the most promising aspects of the DeFi space is synthetic assets, which opens new possibilities for the trading world. Synthetic assets refer to the tokenized version of real-world financial assets. 

Are Synthetic Assets the Answer to Trading Restrictions?

Having already carved a niche in the DeFi space, synthetic asset companies like Synthetix, UMA Protocol, and Mirror Finance are seeing notable traction. With $2.68 billion in locked-in value, Synthetix is the largest synthetic assets protocol, followed by UMA Protocol, which has $63 million in locked-in value. 

The interesting thing about synthetic assets is that they can mimic real-world financial assets like interest rates, currencies, stocks, commodities, indexes, or bonds. For instance, Synthetix added Tesla stock to its growing list of synths or on-chain synthetic assets recently. With this step, Synthetic opened possibilities for DeFi traders to benefit from the price movements of blue-chip stocks like Tesla.

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On top of that, there is no trading censorship on DeFi protocols. Hence, even if centralized trading platforms like Robinhood discontinue the trading of any particular stock, DeFi users would still be able to trade on its price action via DeFi protocols like Synthetix. 

Summary

The more these lawsuits become part of public discourse, the more independent investors may prefer to move away from these platforms. And these migrations will end up bringing the real change that many investment industry stalwarts have been advocating for long: the increased adoption of DeFi.

The time when DeFi innovations like synthetic assets enter the mainstream to offset the disadvantages of centralized financial platforms — could be just around the corner.

Do you think the legal hassles popping up against centralized platforms, such as Robinhood, will encourage users to shift to DeFi? Let us know below in the comments.

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