Robinhood (HOOD) is launching a new standalone “Web 3.0” cryptocurrency wallet that will pay blockchain network transaction fees for its customers without holding customer assets in custody.
“At Robinhood, we believe that crypto is more than just an asset class,” said Vlad Tenev, co-founder and CEO of Robinhood in the press release. “Our web3 wallet will make it easier for everyone to hold their own keys and experience all the opportunities that the open financial system has to offer.”
Robinhood already offers a web-based custodial wallet where the company holds customer funds. But like most other crypto firms, the funds aren't insured by the Federal Deposit Insurance Corporation (FDIC) or other government entity.
By contrast, this non-custodial wallet grants customers full control of their cryptocurrency by giving them access to their wallet's private key, a 64-digit password that when lost cannot be recovered.
Many veteran crypto users prefer non-custodial wallets, even if it means more responsibility.
Custodial wallets — or holding assets with a crypto exchange — opens customer funds to exchange-related hacks. More recently, it could also mean those funds could be forfeited if an exchange went bankrupt, as outlined in a new disclosure in Coinbase’s second quarter earnings report.
A Robinhood spokesperson told Yahoo Finance, while the company has expressed its view that the crypto it holds in custody for its customers “should not become the Company’s property in bankruptcy,” the company acknowledged the view that it hasn’t been tested in court, so there is “some risk” the scenario could occur.
Robinhood’s new wallet also allows customers a way to access NFT marketplaces, DeFi apps, and crypto games — all without paying volatile blockchain network transaction fees.
When sending or receiving crypto across a blockchain, all assets are subject to transaction fees with different blockchains (Ethereum, Solana, Avalanche, Bitcoin) charging different fees based on each network’s scale and usage.
“We want to apply the same classic Robinhood formula to the crypto space,” Johann Kerbrat, Robinhood Crypto’s chief technology officer, told Yahoo Finance.
According to Kerbrat, the company plans to cover network fees for users by passing those fees to larger crypto liquidity providers who will compete to deliver improved prices in return for profit made on each transaction’s spread difference. The practice is similar to the app’s payment-for-order-flow model for stock trading.
While the company would not confirm which blockchains its wallet will operate with, customers can sign up for the waitlist for the new wallet, with some gaining a beta version of the product before the end of the summer. Robinhood hopes to make the wallet available to all customers by the end of 2022.
Since its initial public offering last July, the share value of Robinhood has plummeted, falling more than 70% from $35 to $9.86 as of Tuesday afternoon.
Buffeted by both a decline in retail trading since the pandemic as well as the impact of tightening monetary policy, which has beaten down both technology stocks and crypto, Robinhood posted lackluster earnings for its first quarter of 2022, marking its fifth consecutive quarterly drop in revenue.
Last week, shares of HOOD temporarily leapt more than 20% after a SEC filing showed that Sam Bankman-Fried, the billionaire founder and CEO of crypto exchange FTX, had taken a majority stake (7.6%) in the company.
While Bankman-Fried’s plans for the investment remain unclear, he has yet to show any intention of taking an activist investor approach to the firm and those gains have fallen back to zero for the past seven-day period.
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.