Is Robinhood Chain’s success bullish or bearish for ETH the asset?

Surging volumes on Robinhood Chain could be very good for Ethereum, but only if the “ETH is money” crowd turn out to be right.

Ether price response to Robinhood Chain’s launch. Source: Coingecko

And, if Robinhood’s model succeeds, it could encourage banks, brokers and asset managers to build L2s of their own, and cement Ethereum as the default blockchain for TradFi. Deutsche Bank is already in the process of building a ZK-powered Ethereum L2 called DAMA 2, focused on institutional finance.

Ethereum’s L2 networks use rollup technology to process transactions away from Ethereum’s main chain and periodically settle them back to the network. Robinhood Chain uses Arbitrum technology and is compatible with Ethereum’s wider ecosystem.

But what has caught the industry’s attention isn’t the technology itself, as much as who is using it.

“It’s a real milestone,” Alex Gluchowski, founder and chief executive of Matter Labs, the developer behind Ethereum L2 zkSync, told Cointelegraph. “It shows Ethereum L2s have gone from something crypto-native teams experiment with to infrastructure a regulated, publicly listed company will run its business on.”

Rather than building a blockchain from scratch, as Stripe has opted to do with Tempo, Robinhood chose to tailor an Ethereum rollup to its own needs “for privacy, compliance and performance, while still inheriting Ethereum’s security and connecting to its liquidity,” he added.

Max Shannon, senior research analyst at Bitwise, told Cointelegraph that Robinhood Chain’s success is more significant than previous L2 deployments.

“It represents the growth of the Ethereum ecosystem, particularly among major institutions,” he said. “It also arrives at a time when Ethereum has more broadly repositioned itself toward institutions through Eth Labs and Ethereum Institutional.”

For Shannon, Robinhood’s launch strengthens the investment case for Ethereum because it reinforces the network’s position as the leading blockchain for institutional adoption. He said ETH has the “network characteristics” to become the reserve asset for a growing network of institutional L2s.

But like many, he believes Ethereum’s tokenomics need to be improved so that increased network activity is reflected more clearly in demand for ETH. Ethereum has been criticized frequently for its decision to lower fees for L2s as a way to spark adoption and gain network effects.

Ark Invest’s Lorenzo Valente posted on July 14 that Robinhood Chain had generated $816,000 in revenue since launch, with Arbitrum taking a 10% cut, but only 0.15% of the total being paid back to Ethereum.

“If your thesis is ‘ETH is money,’ Robinhood building here is ultra bullish. More activity, more ETH collateral, more lindyness. If your thesis is ‘ETH is a revenue generating asset,’ this is the ultra-bear case.”

GrowThePie said that Valente’s figures for Eth’s share of the revenue were off by a factor of four and argued “0.6% of revenue is the correct figure.” But even the higher figure is not a meaningful driver of revenue to the L1.

Robinhood Chain generated more gas fees than any other L2 in the past week, but Ethereum only saw $4,400 of that. Source: Matze, GrowThePie

Gluchowski said ETH’s appreciation would not be based on fee revenue, but would likely come from becoming widely accepted money throughout the L2 ecosystems.

“People might pay fees in stablecoins or never think about gas at all,” he said. “But as more value settles through Ethereum, ETH starts to look less like a fee token and more like a base monetary asset for this system.”

Related: Robinhood says its AI agent feature will ‘soon’ be assisting crypto traders

Even ETH bears like Mike Dudas from 6th Man Ventures, have described Robinhood Chain as “the single most bullish thing I’ve seen in eth-land in years.” But after Dudas saw Valente’s post, he added the proviso that “Eth cooked unless ‘eth is money’ takes off or the price of l1 settlement increases.”

While Robinhood’s success may have bolstered the case for Ethereum’s scaling strategy, it has yet to settle one of the network’s biggest unanswered questions: how does growing L2 activity ultimately translate into value for ETH?

Shannon said that recent upgrades like Fusaka have improved Ethereum’s scaling capabilities, but despite transaction activity reaching record levels, demand has yet to translate into meaningfully higher fees or increased ETH burn.

“Robinhood will not solve this problem,” Shannon said, and the collective growth of L2s will likely not either… It requires a wholesale change in developer mindset and in ETH’s token economics.”

Another uncertainty is how much ETH institutional users will actually hold directly. As tokenized stocks and other RWAs increasingly trade against stablecoins, many users may rarely interact with ETH, even though it underpins the network behind the scenes.

Robinhood may have shown that a major financial institution is willing to build on Ethereum’s infrastructure, but whether that ultimately translates into stronger demand for ETH remains to be seen.

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