BRIEF
Robinhood Earn offers its users 7% through deposits into the USDG stablecoin. How does that work?
Good morning,
We don’t tell you where to chase yield.
We ask: how are they paying it?
For Robinhood Earn, even a 7% promise makes it an important question.
Grumping,
Austin Campbell
Teaching DeFi at NYU Stern
Bridging TradFi at Zero Knowledge
🏹 BACK THAT APP UP
🪶 WTF IS ROBINHOOD?
Positioned as the people’s broker: zero-commission trades, full of emojis and mechanics that make markets that feel like a mobile game.
Practically a crypto OG too, launching BTC and ETH trading in 2018, way ahead of the traditional brokerages.
$377B
🏹 WTF IS ROBINHOOD CHAIN?
Robinhood’s new blockchain, featuring decentralized exchanges, perpetual futures, memecoins, and RWAs: Real World Assets, stocks included.
Its launch, so far, has gone very, very well. That doesn’t mean it’s flawless.
💰 WTF IS ROBINHOOD EARN?
Robinhood feature promising premium returns, 7%, for users who deposit their funds into the USDG stablecoin. But where does that yield come from?
⏳ BREAKDOWN : HOOD ECONOMICS
Robinhood doesn’t create the 7%. It turns your dollars into USDG, routes them into third parties, and subsidizes the returns.
Less obvious: What are the risks?
🌀 YIELD YEETING
. 1 .
DEPOSIT
You park your money in Robinhood Earn, exchanging it for USDG, a $ stablecoin. You “earn” 7% on the balance.
. 2 .
HAND OFF
Robinhood routes those USDG stables into Morpho Vaults, which is a decentralized money market; a vault is a pooled fund run by a third-party (basically, managed but lightly-regulated on-chain hedge funds).
. 3 .
LEND
The Morpho curator lends your stables to crypto borrowers, who post collateral (think ETH or BTC) and pay interest, or who use it for certain types of trades (think futures basis). The interest on borrowing pays the yield.
. 4 .
SPREAD
Vault yield floats with borrowing demand. The 7% doesn’t. Whatever spreads sits between those two numbers is filled in by Robinhood and affiliates (for now).
. 5 .
CASH OR COLLAPSE
Borrowing demand dries up, a vault manager misjudges collateral, or a contract breaks? There is insurance, but it’s for theft, not defaults.
In short: your money might be at risk. The principal. Not just the yield.
ZERO INSIGHTS
ROBBIN’ THE HOOD
“There’s a lot of reason to wonder how sustainable even those slightly elevated returns will be, given the size of Robinhood’s customer deposits relative to on-chain liquidity and yield opportunities.”
🎭 BUSTED
Robinhood’s brand speaks the Sherwood story: f*ck gatekeeping finance, bring the game (& the wins) to retail. The OG Robinhood gave to the poor (and shot some people).
But Robinhood Chain might be confusing risk with egalitarianism.
ROBINHOOD
Park your cash, earn 7%. Simple as a savings account, but on-chain. That’s the message.
REALITY CHECK
Park deposits with a lightly regulated third-party fund for lending out at high interest. High interest = high risk (sh*t can blow up).
BAG HOLDERS
If Robinhood Earn’s promise breaks, will Vlad hold the bag? If not, retail investors holding USDG (mostly not finance-native or crypto-native) will.
ZERO OUT
Robinhood’s pitch? Earn (and don’t worry about how we pay it).
1️⃣ USDG “deposit” that’s a loan to leveraged traders, with a 7% yield on it
2️⃣ A yield promise that only holds as long as the DeFi play pays more than 7% (and doesn’t break)
BEST CASE
The 7% yield on Robinhood Earn is conservative enough to stay coverable, even when returns are not exceptional in the underlying markets.
WORST CASE
Robinhood learns the deeper risks of DeFi the hard way, and its least savvy customers end up paying the tuition, much like Gemini with GUSD.
“A few hundred basis points of return vs. U.S. Treasuries might not be worth the risk implied by Robinhood’s Earn plan.”
ZERO INSIDER
Starred in Perena’s But Why?, a new 8-episode fintech education series, where the first episode starts from first principles: what are blockchains? why blockchains? In our financial system, what problems do they actually solve? See Episode 1, Blockchain. And special thanks to Anna Yuan and Perena for partnering with us here.
Starred in my favorite interview I’ve ever done: Episode 2 of .thedotfiles, on my work investigating crypto and fraud. SBF from Jane Street to the stand, effective altruism, AI doomerism as marketing. A pretty good primer on my work if you’re curious.
Shirley Yu
Seriously produced Perena x ZK’s smart AF 101 series “But Why” : Blockchain 👩🏻🎓
Unseriously produced ZK’s st00pid AF Austin & David dance video 🤦🏻♀️