In brief
Robinhood’s Johann Kerbrat believes that overhauling investor accreditation rules could help tokenization flourish in the U.S.
Under current rules, 90% of investors in the U.S. would be prohibited from participating from investing in early-stage companies on-chain.
Kerbrat made a formal recommendation to the SEC earlier this year to implement knowledge-based and self-certification components to
the accreditation process.
In order to capitalize on one of tokenization’s true benefits, investor accreditation requirements should be revamped to empower everyday investors with more freedom, according to Johann Kerbrat, Robinhood Crypto’s senior vice president and general manager.
In a recent interview with Decrypt, Kerbrat said that blockchains could one day be used to help startup founders raise capital in a transparent way that helps them preserve control. However, under current rules in the U.S., 90% of the population wouldn’t be able to participate—because they don’t, for example, make more than $200,000 a year.
Typically, as a company goes from a passion project to publicly traded firm, venture capitalists and private equity firms help raise funds along the way. When it comes to listing on a stock exchange, investment banks also play a significant role, underwriting the offering, and as Kerbrat described it, commanding a “huge banking fee.”
According to Kerbrat, a founder risks losing control through share dilution, among other factors, as intermediaries extend their services on the company’s path to an eventual IPO. On top of that, venues like the Nasdaq often charge their own exchange fee, he added.
“These steps are just middlemen that are taking over the company, and not necessarily creating value for your customer, for your employee base, or anything like that,” he said. “We could bring, with tokenization, a new world to raising funds, where instead of launching a new coin, you could launch a new offering for your startup and raise funds on-chain.”
With a regulatory backdrop that’s more supportive of innovation, Kerbrat said that Robinhood is well positioned to help startup founders bypass middlemen, leveraging its “huge retail platform” alongside its connections on the institutional side with market makers.
Instead of basing an investor’s accreditation on factors like their salary, Kerbrat argued that “the checkpoint should be education” and whether investors are aware that early-stage investments carry outsized risk.
In April, Kerbrat submitted a letter to the Securities and Exchange Commission recommending that there should be knowledge-based tests and self-certification components to accreditation.
“A new regulatory approach is needed to allow tokenization to flourish, and that system should be designed at a federal level to provide consistency to the marketplace,” the letter stated.
Whether it’s stocks, bonds, or real estate, tokenization can refer to any asset that’s represented with a token on-chain. Last month, crypto exchange Kraken said that it would begin offering users in Europe the ability to trade U.S.-listed stocks using Solana.
Tokenization advocates, including BlackRock CEO Larry Fink, have focused on benefits beyond the potential democratization of markets. When he backed tokenization in 2022, his focus was on greater market efficiency and settlement that’s nearly instantaneous.
“I think there are a lot of advantages, but right now, what is blocking us from this world is a lot of [outdated] rules,” Kerbrat said, underscoring that tech isn’t what’s holding tokenization back.
Edited by James Rubin
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