Robinhood’s DeFi Wallet Will Offer Free Trades But May Use Controversial PFOF Model
Brokerage firm Robinhood has unveiled plans to launch a new Web3 digital wallet, allowing users to interact with the booming decentralized finance (DeFi) ecosystem. In a very early effort, the company also aims to cover gas costs, but there’s a catch.
Robinhood’s new wallet could rival MetaMask
Robinhood announced a new Web3 wallet that would allow users to participate in the DeFi ecosystem, allowing them to enjoy benefits such as access to non-fungible token (NFT) markets, decentralized exchanges (DEX) and tokens. exchange.
The wallet will be offered as a standalone app from Robinhood’s existing platform, Robinhood co-founder and CEO Vlad Tenev said at the Permissionless crypto event on Tuesday. The wallet would work similarly to other non-custodial wallets like MetaMask, with Robinhood hoping it would become more attractive with a sleek design.
“At Robinhood, we believe crypto is more than just an asset class. With our Web3 wallet, we are building a product that will satisfy the most advanced DeFi believers while creating a safe on-ramp for those just starting out. in crypto to deepen 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 this 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 Wallet will come free suggesting PFOF pattern
The company aims to offer a significant bonus to users of its upcoming Web3 wallet by covering their gas costs. In crypto, gas fees refer to the amount of crypto a user must pay to complete a transaction on a network. In times of extreme network congestion, gas charges can even run into the millions of dollars.
Without a doubt, covering gas costs would be an invaluable feature for the wallet. However, the way Robinhood aims to cover gas costs, relying on third-party liquidity providers to receive the best price on any given exchange, is somewhat concerning, even though the brokerage firm has stated that she wouldn’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. Simply put, the PFOF is the compensation a brokerage firm receives from a market maker in exchange for routing trades.
The practice is especially beneficial for small brokers as they can route orders to a wholesaler and receive compensation while saving costs and resources. However, the PFOF is considered controversial because it has “an inherent conflict of interest”.
In mid-2021, SEC Chairman Gary Gensler even claimed that a PFOF ban was “on the table.” Gensler said, “He [PFOF] provides an opportunity for the market maker to earn more and ultimately for the investing public to get a little less when selling, or have to pay more when buying.
Nevertheless, the new wallet should be fully launched by the end of the year. However, a beta program of the application could be launched as soon as this summer, allowing some users to interact with it.
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About the Author
Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of writing experience in the field. He has a solid understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging non-fungible token (NFT) market. He is an active user of digital assets for remittances.