August 27, 2020 · 6 min read

So where is that Sheriff of Nottingham when you need him?

I wasn’t getting so lucky on Tinder so I updated my bio as Robinhood day trader and…BOOM! - 27, anonymous

As many bored millennials turned to investing (some turned to collecting crystals) under coronavirus lockdown, Robinhood flies high.

Robinhood is now valued at $11.2B following a $200M Series G last week led by D1 Capital Partners. Compared to the recent prior valuation of $8.6B in July 2020, the commission-free trading app pumped up its valuation $2.6B in a month. Epic. Robinhood added in 3 million new users in the first 4 months of 2020, posted a $91M order flow revenue in the first quarter of 2020, and it doubled in the second quarter to $180M. In terms of trading volume, Robinhood did better than its competitors. The infographic below shows DARTs of Robinhood and its competitors in the month of June. The numbers are based on Bloomberg’s reporting.

TD Ameritrade’s DARTs are up 62% compared to Q1 2020 and have quadrupled YoY. E Trade’s DARTs set new records for six months in a row resulting in an amazing 1.1M DARTs in June.

Now let’s look at their revenue growth. E Trade, TD Ameritrade, Charles Schwab and Interactive Brokers all slashed their commission to ZERO in the fourth quarter of 2019. As you can see from the chart below, since the announcement, the trading volume jumped and so their order routing revenues skyrocketed (although they could not offset the commission revenues loss).

Before we move on to crypto trading, if these brokerage firms are not billing their users, then who do they get paid from instead? Firms that execute trades for them like Citadel, Two Sigma Securities, Wolverine Securities and Virtu Americas. But are we actually not paying anything? Are we getting best execution than gold, pro, premium payers? Minimum slippage? Maybe not.

APPL and KODK are not thrilling enough? Crypto traders, where you at?

According to Apptopia, the top 10 crypto wallet apps including Coinbase, Binance, Crypto,com saw a 81% increase YoY in app installs. Bitcoin is now trading in a price range of between $11,000 and $12,000, up more than 120% from its corona-low in March and more than 25% since post-halving in May.

  • Crypto exchange FTX acquires Blockfolio, a crypto portfolio tracking app, for $150M.

  • Wealthsimple(aka Canadian Robinhood) is given approval to operate crypto-trading under CSA’s regulatory sandbox.

  • JP Morgan swapped investment in Consensys for its ‘Quorum’ platform which runs the Interbank Information Network, a payments network that involves more than 300 banks. So - is that getting into or getting out of crypto?

  • Goldman Sachs is exploring the possibility of creating its own token with a new global head of digital assets.

  • Standard Chartered is launching a crypto custody solution. If you are interested in finding out more about what banks are doing with blockchain, click here ;)

Lots of reasons to bet on bitcoin bull? (Robinhood bitcoin speculator ‘Brads’ and ‘Joes’ may have contributed to this, idk)

The infographic below maps out major crypto exchanges. The y-axis shows the number of customers and the sizes of the circles show 24h trading volume.

Binance is leading the market in terms of trading volume and Coinbase has the most users.

So all of the big boy exchanges above are “centralized” exchanges. However in the past months, decentralized exchanges (DEXes) have been growing fast. They aren’t yet closing in on the centralized leaders but their trading volumes rose by 174% in June. Uniswap, Aave, and Curve Finance are leading in terms of recent 24hr trading volume ($207M, $81M, $55M respectively).

Total value of $1.7B is “locked” (capital is deposited in the form of liquidity in a trading pool) in DEXes. ETH price effect undone, DEXes are trending.

So what’s the deal?

Take Uniswap for example, it does not work by the order book approach, the good old bid/ask system. Instead, it uses liquidity pools. Anyone can become a market maker liquidity provider by posting any ERC20 token and an equivalent value of ETH to a pool. Why don’t you go add that on your linked in profile.

The prices depend on the relative quantity of each token within the pool so there will be arbitrage opportunities that will further encourage trading. Warren Buffet shakes his head This could then cause a growth of certain projects without any actually meaningful developments. In addition, with automated “price-discovery” based on the balance of one token versus the other in the pool, there will be slippage versus the market especially for low liquidity pools… What’s more, Uniswap does not have any barriers, rules or criteria for listing, leaving the door wide open for scam tokens.

So let us ponder for a moment on what kind of fees crypto exchanges might be making and how that might compare to traditional exchanges, including Robin Hood. Binance charges 0.1% and Coinbase 0.5% - applying that to their daily dollar volumes gives us $2m a day in fees for Coinbase and $1.7M a day for Binance. This would put Coinbase in the same league as Robinhood with $180M for the quarter. This is without considering withdrawal fees or any margin on the pricing. Turning to the ‘Defi’ exchanges, these are smaller again but Uniswap, Aave and Curve (assuming a 0.3% fee across all) are on target to deliver quarterly fees of $56M, $22M and $15M respectively in fees. Considering Uniswap daily trading started July at $2m and is now past $200M, the figures may not have ‘peaked’ yet.

Trading apps for either traditional stocks or crypto have definitely lowered the entry barrier for investing, and that’s good. However, giving a tool to a person who does not know how to use the tool is also hazardous. The FOMO is real, guys. Do your homework first. Investing opportunities will still be there.