Thursday, July 29, 2021

Robinhood and GameStop proved we need a new financial system


King Midas is most famously remembered by means of the fable we inform our youngsters that the king may flip the whole lot he touched into gold. At first, it was an awesome concept that his greed turned even meals into gold, leaving him rich however unable to dwell. 

Robinhood’s CEO and its board had the unattainable King Midas dilemma this week: deciding whether or not to aspect with their prospects and allow them to make over $15 billion in income or halting buying and selling and permit solely the sale of GameStop (GME) to allow the money-hungry shorts to cowl their place at decrease costs and keep away from huge losses. Robinhood showed everyone that its favorite color is money, and its mates are the identical individuals who ensure you virtually by no means win buying and selling on Wall Road.

Associated: GameStop saga reveals legacy finance is rigged, and DeFi is the answer

Greed will win many times

Because it normally does on Wall Road, greed triumphed. It was not solely Robinhood, Interactive Brokers, Ameritrade, Charles Schwab, and Citadel and Level 72 however all centralized funds sided with the shorts.

Robinhood launched a platform and an app that represented the individuals and that was all the time going to behave within the customers’ greatest pursuits. Nonetheless, the golden rule of startups applies: In the event you don’t pay for the product, you’re the product. The corporate’s actual plan was to collect sufficient order move and property to cost massive market makers a whole lot of hundreds of thousands of {dollars} in charges associated to securities lending and order move. The professionals on Wall Road name retail traders “plankton,” as it’s what hedge funds and establishments feed upon to ship obscene income and bonuses to their workers and shareholders.

How is it potential in 2021 to have 136% of inventory promote brief? Who permits such issues to exist and why isn’t anybody being held accountable? Whereas everybody is concentrated on enabling the Reddit mob to purchase GME, nobody is trying into the basis explanation for the GME downside: the collusion of brokers and hedge funds to make use of bare shorting to destroy firms for pure revenue.

When the GameStop short squeeze occurred, we discovered who Robinhood’s largest buyer actually was: Citadel & Point72 (two of essentially the most storied hedge fund managers on Wall Road), which pays Robinhood over $300 million in charges yearly for the order move and securities lending. It’s laborious to consider Robinhood has its neighborhood’s again when it’s all the time trying over its personal shoulder.

Associated: r/Wallstreetbets vs. Wall Street: A prelude to DeFi bursting onto the scene?

Crypto is the shining metropolis over the hedge

Creating unobstructed entry to fundamental monetary companies has the potential to unleash the genius and sleeping expertise in our society. IQ is distributed equally throughout the planet, however entry and alternative should not. Typically, entry is dependent upon standing and wealth, which suggests beating the system is unattainable. What is feasible? We have to benefit from this second, when the normal monetary establishments are uncovered, to introduce the waves of innovation which have been occurring on blockchain applied sciences.

From bare brief positions to mendacity about how a lot annual proportion yield you actually ought to be making from holding your property with these establishments, it’s time to introduce actual, impactful monetary freedom by means of monetary instruments and strategies that act in the very best curiosity of the customers and never the abusers on the very prime.

There’s a cause why among the most clever, modern and community-focused leaders are including Bitcoin (BTC) and Ether (ETH) to their wallets and including them to their Twitter profiles right this moment. In protest of what now we have witnessed this week — as a result of irrespective of how laborious they struggle — hedge funds, fats cats and tech bros can not flip Bitcoin into {dollars} reserved just for their very own pockets as a result of the decentralized neighborhood is larger than they’re.

This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer entails threat, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed here are the writer’s alone and don’t essentially mirror or characterize the views and opinions of Cointelegraph.

Alex Mashinsky is likely one of the inventors of Voice Over Web Protocol with a foundational patent relationship again to 1994 and is now engaged on Cash Over Web Protocol expertise. Over 35 patents have been issued to Alex regarding exchanges, VOIP protocols, messaging and communication. As a serial entrepreneur and founding father of seven New York Metropolis-based startups, Alex has raised greater than $1 billion and exited over $3 billion. Alex is the CEO and founding father of The Celsius Community, a crypto lending platform based in 2017 that gives members with curated companies unavailable by means of conventional establishments.