Robinhood’s DeFi Wallet to Offer Free Trades But May Use Controversial PFOF Model
Brokerage firm Robinhood has unveiled intentions to launch a new digital Web3 wallet, allowing users to interact with the booming decentralized finance (DeFi) ecosystem. In a first-ever effort, the company also aims to cover gas fees—however, there is a catch.
Robinhood’s New Wallet Could Rival MetaMask
Robinhood has announced a new Web3 wallet that would enable users to participate in the DeFi ecosystem, allowing them to enjoy benefits like access to non-fungible token (NFT) markets, decentralized exchanges (DEXes), and swap tokens.
The wallet will be offered as a standalone application from Robinhood’s existing platform, Co-founder and CEO of Robinhood Vlad Tenev said at the crypto event Permissionless on Tuesday. The wallet would function similarly to other non-custodial wallets like MetaMask, with Robinhood hoping that it would become more attractive with a sleek design.
“At Robinhood, we believe that crypto is more than just an asset class. With our web3 wallet, we’re building a product that will satisfy the most advanced DeFi believers while creating a secure on-ramp for those who are just starting out in crypto to go deeper into the ecosystem.”
The announcement comes just over a month after Robinhood activated its crypto wallet for 2 million “eligible” customers, allowing them to transfer their crypto holdings off its platform. The functionality of that wallet is currently limited to seven more popular cryptocurrencies including Bitcoin, Bitcoin Cash, Bitcoin SV, Dogecoin, Ether, Ether Classic, and Litecoin.
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Robinhood’s Wallet Will Come with No Fees Suggesting PFOF Model
The company aims to offer one significant bonus to users of its upcoming Web3 wallet by covering their gas fees. In crypto, gas fees refer to the amount of crypto a user should pay in order to conduct a transaction on a network. At times of extreme network congestion, gas fees can even reach millions of dollars.
Undoubtedly, covering gas fees would be a priceless feature for the wallet. However, the way Robinhood aims to cover gas fees, which is by relying on third-party liquidity providers to receive the best price on a given swap, is somehow worrisome—even though the brokerage firm has said it won’t take a cut of the profits.
This can be compared to the controversial practice called payment for order flow (PFOF) that Robinhood’s stock and crypto platform relies on. In simple terms, PFOF is the compensation a brokerage firm receives from a market maker in exchange for routing trades.
The practice is specifically beneficial to small brokers as they can funnel orders to a wholesaler and receive compensation while saving costs and resources. However, PFOF is considered controversial since it has “an inherent conflict of interest.”
In mid-2021, SEC Chairman Gary Gensler even claimed that a ban on PFOF is “on the table.” Gensler said, “It [PFOF] provides an opportunity for the market maker to make more, and for ultimately the investing public to get a little less when they sell, or have to pay more when they buy.”
Nevertheless, the new wallet is expected to be fully launched by the end of the year. However, a Beta program of the app might launch by as soon as this summer, allowing select users to interact with it.
Do you think users would trust Robinhood’s Web3 wallet? Let us know in the comments below.