Finance Monthly - November 2021 Edition

21 Finance Monthly. F i nanc i a l Innov a t i on & F i nTech A cursory glance at Robinhood’s most recent quarterly report (2Q 2021) informs us that 80% of Robinhood’s 2Q21 revenues came from “transaction-based revenues.” Cryptocurrency transactions accounted for 51.6% of these transaction revenues, options made up 36.6%, and equities only 11.5%. In Mr Tenev’s WSJ OpEd, he decries his critics who “insist that our platform is gamified.” With classic rhetorical deflection, he never answers the question as to whether or not the platform is actually gamified but instead asks: “Investing isn’t a game, but must it be grim and difficult to understand?” If Mr Tenev truly wants to address the concerns of Robinhood’s critics, then there is a very simple way that he can do so. Show us the data. Show us how Robinhood chooses which “lists of stocks and exchange-traded funds that help people discover investments and notifications about stock movements that help them to stay informed.” Show us how Robinhood decides what cryptos and options they put in front of users. Show us what percentage of the bid-ask spread Robinhood gets paid for its payment for order flow (PFOF) on equities, options, and crypto. Given what we know about Robinhood’s profit incentives, should we trust Robinhood to decide what “lists” and “notifications” to put in front of us? Should we trust Facebook to decide what content to put in front of our teenage daughters? The answer is clearly no – and no amount of smooth PR deflection should suffice to keep us from seeking answers to such important questions. Robinhood’s own statements and filings show beyond a shadow of a doubt that Robinhood is driving its users into themost speculative areas of the markets. All we know for a fact is that this is extremely profitable for Robinhood. It’s often said today that “data is the new oil.” It is true. Companies like Facebook and Robinhood that pursue the user-as-product business model are not what they appear to be. They are, in truth, digital resource extraction businesses. They extract data, refine it, and sell the “digital oil” to their actual paying customers (advertisers and market makers). They use user data to nudge their users towards the behaviours that benefit their paying customers. In exchange for trusting such companies withmassive amounts of our data, we should demand that they be transparent about how they are using this data to nudge customer behaviour. If they won’t be more transparent, then there is only one other option: stop using their platforms. Dr Richard Smith – Berkeley Mathemati- cian and PhD in System Science – is a FinTech entrepreneur, the CEO of The Foundation for the Study of Cycles, and the author of The Risk Rituals newslet- ter. Dr Smith has built a reputation as “The Doctor of Uncertainty” amongst his academic peers and has helped government agen- cies and Fortune 500 companies alike make sense of complex sets of data. In his upcom- ing book The Risk Manifesto, Dr Smith will aim to further edu- cate investors on how to circumvent self-de- structive instincts and adopt a systematic way to manage their fear of risk.