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DeFi Trend: The Solution — and Huge Opportunity — to the Robinhood Fiasco

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Matt McCall
·5 min read
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The craziness over GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), short-selling, Robinhood, and Reddit has faded a bit.

a digital graph overlayed over hands typing and a pile of crypto coins
a digital graph overlayed over hands typing and a pile of crypto coins

Source: Shutterstock

Still, the bizarre trading continues to some degree.

Just this week, GameStop swung an average of 31% — each day!

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Someone asked me on Twitter if my firm was “one of the players” in what was going on with the stock, and I wanted no part of that.

“I/We had zero exposure to $GME and have no plans to sit down at that casino,” was my response.

But making and losing money aside, the whole spectacle does raise some questions and concerns that I expect will be discussed well into the future. Maybe even more regulations.

Here’s the thing. There’s already a solution to this. It’s the future of finance and should be part of your financial future …

Of all the craziness over the last week and a half, I got irked the most by Robinhood placing limits on shares you could trade in certain stocks.

I don’t think it should be up to any brokerage firm or regulator to tell anyone that they do not have enough money or are not sophisticated enough to invest.

Let me explain a little bit what was going on … and why the answer is already here.

All brokerages, from Robinhood to Fidelity to Charles Schwab, work with a clearinghouse on trades. It typically takes two days for trades to clear, with shares going to the buyer and money going to the seller. In the industry, this is referred to as T+2 … meaning the trade date plus two days for clearance and settlement.

These clearinghouses demand a certain amount of collateral on hand brokerages to make sure funds are available. When volume skyrocketed on GameStop and other stocks, Robinhood’s clearinghouse raised that collateral requirement significantly.

Robinhood apparently negotiated with the clearinghouse to lower the collateral if they restricted the number of shares investors could trade.

Chaos still ensued.

I’ve actually been critical of Robinhood for a long time. Yes, it was great that they forced the big guys to lower commissions to zero … but they have been scalping small investors for too long. And this was unacceptable.

I’ll say this. There’s been talk of a Robinhood IPO, but I have to think the value of a potential offering has plummeted.

There’s plenty of blame to go around, but one of the problems in this whole fiasco is the clearinghouse. A clearinghouse is essentially a middleman between buyers and sellers of stocks working through brokerages.

If only there was a way to eliminate the middleman

Oh wait, there is!

It’s called the blockchain.

This is a real-life case study of the benefits of blockchain … and the huge opportunity for investors.

Blockchain is the transformative technology platform that bitcoin and altcoins (cryptocurrencies other than bitcoin) are built on.

I’ve mentioned before that you should view altcoins as revolutionary new software programs and not fantasy internet money.

There’s a special situation rapidly unfolding in the crypto markets right now, and it relates to the crazy trading we’ve seen in the stock market.

It’s called decentralized finance, or “DeFi” for short.

DeFi is a global movement toward an open financial system. I’m talking savings, loans, insurance, trading, betting, and more … all accessible in one place to anyone with an internet connection.

Best of all … the government can never touch it.

Remember, bitcoin and altcoins are run on the blockchain, which is basically a smart contract. We don’t need an intermediary like a lawyer, a banker, or even a clearinghouse with smart contracts. Transactions like stock purchases can be verified on the blockchain in mere moments.

I like to think of DeFi as a high-tech vending machine. With just a single click of your finger, you’ll be able to take out a loan or mortgage … buy a new insurance policy … make money loaning out your money … invest in stocks, bonds, or any other asset class… deposit your cash into a safe savings account.

You’ll do all of this in one place — right from your phone or computer — without dealing with middlemen and their unnecessary fees and sometimes prohibitive requirements.

Let me give you a couple of examples. One altcoin in the DeFi space is called Compound. It is revolutionizing the way we borrow and lend money. It allows you to lend out crypto and earn interest in return. You can even use Compound to take out a loan — without using a bank or middleman.

Aave is another altcoin in the DeFi space. It’s similar to Compound in that it helps people earn interest on their assets and take out loans.

Aave grew 24,532% in just over one year. That’s equivalent to a 250X gain!

And that isn’t even a coin I recommend currently.

DeFi is the biggest revolution to occur in finance in centuries, and we’ve just seen how we need it more than ever. InternationalBanker.com calls it “a major breakthrough in the world of financial services.”

And as a result, it can unleash a new, powerful wealth-creation force.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.

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