Ripple CTO Warns Robinhood Users: "You Can Sue Them" Over Tokenized Private Stocks

Ripple Chief Technology Officer (CTO) David Schwartz has issued a cautionary statement regarding Robinhood's new offering of tokenized versions of private company stocks, such as OpenAI and SpaceX. While Robinhood asserts these tokens provide retail users with "exposure" to pre-IPO companies, Schwartz highlights a critical distinction: these digital assets do not confer actual equity, ownership, or voting rights in the underlying firms.

Understanding Tokenized Exposure

Robinhood's innovative product aims to give everyday investors a pathway into traditionally exclusive private markets. The tokenized shares are built on blockchain technology, with Robinhood guaranteeing to mirror the performance and behavior of the actual stocks, including any splits or dividends. This structure creates a synthetic exposure to the private companies' valuations, rather than direct ownership. While appealing for its accessibility, Schwartz's comments underscore the unique risks associated with this novel financial instrument.

The Recourse for Broken Promises

Schwartz's primary concern revolves around the nature of the promise Robinhood is making to its users. He emphasizes that if Robinhood, for any reason, fails to uphold its commitment to accurately reflect the underlying stock's behavior, the users' only viable recourse would be legal action. His direct statement on the matter succinctly warns potential investors: "You can sue them" if the company does not deliver on its mirroring promise, assuming the company itself remains solvent. This stark assessment serves as a crucial reminder for investors to fully comprehend the legal and financial implications of engaging with synthetic, tokenized assets that lack traditional ownership structures. The onus is on users to understand that their claim is against Robinhood's promise, not against the private company itself.