In the summer of 2025, shares of Robinhood hit an all-time high following the announcement of ambitious plans from the e-trading giant to expand its financial services. The plans involve launching new initiatives, including Robinhood Strategies, Robinhood Banking, a prediction markets hub, and expanded crypto offerings for retail investors. Robinhood touts itself as a key player in democratizing investing by bringing individual investors into markets traditionally dominated by institutional players.  As of May 31, Robinhood reported 25.9 million users and $255 billion in platform assets. However, the company’s foray into crypto and retail investing raises questions about the adequacy of protections for consumers on the platform. 

Crypto Offerings

One of the most notable financial products Robinhood rolled out this year is a novel tokenization strategy. European consumers will be able to buy tokenized versions of U.S. stocks and ETFs, allowing them to invest in companies like Open AI and Space X, which are currently accessible only to accredited investors in the private market. While these tokenized assets are not yet available to U.S. consumers, Robinhood’s CEO has stated that tokenized stocks are central to the company’s long-term strategy, and he plans to eventually make them available in the U.S.

Robinhood advertises these new tokenized offerings as an innovative solution to the lack of retail access to high-growth private companies. Abundant private capital has allowed many firms to remain private longer, locking retail investors out of early-stage returns. For instance, in early 2024 OpenAI closed a $40 billion funding round, bringing the company to a $300 billion valuation.

Robinhood will execute this strategy by buying shares in private companies and making a token representing that share available for purchase to customers. However, the tokenized offerings are not legally equivalent to stocks. When an investor buys stock in a company, it is a formal contract that conveys legally enforceable rights, such as an equity interest in the company and in some cases voting rights. In contrast, crypto tokens have few or no legal protections for investors if Robinhood is not able to honor the value of the tokens.

Addictive Trading Behaviors

In addition to concerns about the legal ambiguity of the tokenized assets, Robinhood’s UX design has drawn criticism for features that encourage risky behaviors among retail traders. While Robinhood markets itself as a zero-commission business model, a large portion of the platform’s revenue comes from compensation each time a user makes a trade (called “payment for order flow”). In fact, one study found that the average round-trip costs (the cost to buy and sell an option) was 6.8 percent at Robinhood, significantly higher than many competitors. This gives Robinhood an incentive to maximize the number of individual trades made by users on their platform. One method to boost engagement is to gamify the trading experience. Over the years, the platform has used features like confetti after a trade, push notifications, and chances to win high-value stocks by “scratching off” a digital ticket.

This model is at odds with conventional investment wisdom, which counsels investors to hold onto a diversified portfolio for long periods of time in order to take advantage of dollar-cost averaging. Indeed, research studying the behavior of Robinhood investors found they are more likely to engage in “attention-induced” trading than other retail investors, earning lower returns than their peers. Beyond the financial consequences, gamblers anonymous saw a sharp uptick in young men with gambling addictions related to trading on platforms like Robinhood. Pennsylvania’s gambling hotline had more crypto and stock related gambling calls in 2021 than over the prior six years combined.

In response to these concerns, the SEC voted to expand the Regulation Best Interest rule  (“Regulation BI”) to broker dealers and trading apps in 2023. Regulation BI commands that when a covered entity makes a recommendation, the entity must act in the “best interest” of the retail consumer.

Despite these regulations, gamified UX design is still ubiquitous on finance applications. While Robinhood eliminated the confetti animation feature, the platform has other design features that nudge users into trading more frequently.

Some states have tried to step in to curtail the addictive risks of these apps.  In 2024, Robinhood agreed to pay a $7.5 million fine and revise its app design as part of a settlement with Massachusetts securities regulators over allegations that the company’s gamification practices enticed naïve investors into placing risky trades. FINRA has also carried out enforcement actions against Robinhood over failure to address potential misconduct and verifying the identity of users.

This post comes to us from Miller Shah LLP. It is based on the firm’s article, “Robinhood’s Expansion in Tokenized Offerings Highlights Need for Increased Regulation.”