From Grassroots to a Market Capitalization of 600 Billion, the Ten-Year Legendary Journey of Robinhood

A friend once described Tenev like this: a good financial person, "the Robin Hood of finance."

Later, this nickname became the name of a company that changed the financial industry. However, this is not the beginning of the story.

Tenev and Bart, two founders with backgrounds in mathematics and physics from Stanford University, met during an undergraduate summer research project at Stanford.

Neither of them had anticipated that they would be deeply intertwined with a generation of retail investors. They thought they chose retail investors, but in reality, it was the era that chose them.

During his studies at Stanford, Tenev began to question the prospects of mathematical research. He grew weary of the academic life where one could spend years tackling a problem, only to end up with nothing to show for it, and he could not understand the obsession of his doctoral classmates who were willing to toil away for meager pay. It was this reflection on traditional paths that quietly sowed the seeds of his entrepreneurial spirit.

In the fall of 2011, coinciding with the peak of the "Occupy Wall Street" movement, public dissatisfaction with the financial industry reached its zenith. In New York's Zuccotti Park, protesters' tents were scattered everywhere, and even from their office windows in San Francisco, Tenef and Bart could see the aftermath of this scene.

That year, they founded a company called Chronos Research in New York to develop high-frequency trading software for financial institutions.

However, they soon realized that traditional brokers kept ordinary investors out of the financial markets with high commissions and complicated trading rules. This led them to ponder: Can technology that serves institutions also serve retail investors?

At that time, emerging mobile internet companies like Uber, Instagram, and Foursquare were on the rise, and products designed specifically for mobile devices began to lead the trend. In contrast, in the financial industry, low-cost brokers like E-Trade still struggled to adapt to mobile devices.

Teneff and Bart decided to transform Chronos into a free stock trading platform aimed at millennials, in response to this wave of technology and consumerism, and applied for a broker-dealer license.

Millennials, the internet, and free trading—Robinhood has gathered the three most disruptive elements of this era.

At that time, they did not anticipate that this decision would open the extraordinary decade belonging to Robinhood.

Hunting the Millennial Generation

Robinhood has turned its attention to a blue ocean market that was then overlooked by traditional brokerage firms—the millennial generation.

A survey conducted by traditional financial management company Charles Schwab in 2018 showed that 31% of investors compare the fees when choosing intermediary institutions. The millennial generation is particularly sensitive to "zero fees"; more than half of the respondents stated that they would switch to platforms with more competitive pricing because of this.

Zero-commission trading emerged against such a backdrop. At that time, traditional brokers typically charged $8 to $10 per trade, but Robinhood completely eliminated this fee and set no minimum account balance requirement. The model that allows trading for as little as one dollar quickly attracted a large number of novice investors. Coupled with a simple, intuitive, and even "game-like" interface design, Robinhood successfully increased user trading activity and even cultivated a group of young users who became "addicted to trading."

This transformation of the charging model ultimately forces the industry to transform. In October 2019, Fidelity, Charles Schwab, and E-Trade successively announced that they would reduce commissions on each transaction to zero. Robinhood became the "first" to carry the banner of zero commissions.

Using the Material Design style launched by Google in 2014, Robinhood's gamified interface design even won an Apple Design Award, becoming the first financial technology company to receive the award.

This is part of the success, but it is not the most critical aspect.

In an interview, Tenev described the company's philosophy by quoting a line from the movie "Wall Street" spoken by the character Gordon Gekko: The most important commodity I own is information.

This sentence reveals the core of Robinhood's business model - Payment for Order Flow (PFOF).

Like many internet platforms, Robinhood seems free, but there is actually a more expensive cost behind it.

It profits by selling the user's order flow to market makers, but users may not be able to execute trades at the market's best price and believe they are benefiting from zero-commission trading.

In simple terms, when users place orders on Robinhood, these orders are not sent directly to the public market (such as Nasdaq or the New York Stock Exchange) to be executed; instead, they are first forwarded to market makers that partner with Robinhood (such as Citadel Securities). These market makers will match buy and sell orders at a very small price difference (usually a difference of one-thousandth of a cent) to profit from it. In return, the market makers pay Robinhood a payment for order flow.

In other words, Robinhood's free trading is actually making money "where users can't see it."

Despite founder Tenev's repeated claims that PFOF is not a source of profit for Robinhood, the reality is that in 2020, 75% of Robinhood's revenue came from trading-related businesses, and by the first quarter of 2021, that figure rose to 80.5%. Even though the proportion has slightly decreased in recent years, PFOF remains an important pillar of Robinhood's revenue.

New York University marketing professor Adam Alter stated in an interview: "For companies like Robinhood, simply having users is not enough. You have to keep them constantly clicking the 'buy' or 'sell' buttons, lowering all the barriers that people may encounter when making financial decisions."

Sometimes, this extreme experience of "lowering the barriers" brings not only convenience but also potential risks.

In March 2020, 20-year-old American college student Cairns discovered that his account showed a loss of up to $730,000 after trading options on Robinhood—far exceeding his $16,000 principal debt. This young man ultimately chose to take his own life, leaving a note to his family that read: If you are reading this letter, I am no longer here. Why could a 20-year-old with no income access nearly $1 million in leverage?

Robinhood has accurately tapped into the psychology of young retail investors: low barriers to entry, gamification, and social attributes, and has reaped the rewards of this design. As of March 2025, the average age of Robinhood users remains stable at around 35 years old.

But everything that fate bestows has a price tag, and Robinhood is no exception.

Robin Hood, rob from the poor to give to the rich?

From 2015 to 2021, the number of registered users on the Robinhood platform grew by 75%.

Especially in 2020, with the COVID-19 pandemic, the U.S. government's stimulus policies, and the surge in public investment, both the number of platform users and trading volume skyrocketed, with managed assets briefly surpassing 135 billion USD.

The number of users has surged, and disputes have followed one after another.

At the end of 2020, the Massachusetts securities regulator accused Robinhood of attracting inexperienced users through gamification techniques, while failing to provide necessary risk controls during market volatility. Shortly thereafter, the U.S. Securities and Exchange Commission (SEC) also launched an investigation into Robinhood, accusing it of failing to secure the best execution prices for its users.

Ultimately, Robinhood chose to pay $65 million to settle with the SEC. The SEC explicitly pointed out that even considering the commission-free advantage, users still suffered a total loss of $34.1 million due to price disadvantages. Robinhood denied the allegations, but this controversy is destined to be just the beginning.

What really drew Robinhood into the public opinion maelstrom was the GameStop incident in early 2021.

This video game retailer, which carries the childhood memories of a generation of Americans, has fallen into trouble under the impact of the pandemic and has become a target for institutional investors to short sell heavily. However, thousands of retail investors are unwilling to watch GameStop be crushed by capital. They gathered on the Reddit forum WallStreetBets, collectively buying in using trading platforms like Robinhood, sparking a retail short squeeze battle.

GameStop's stock price surged from $19.95 on January 12 to $483 on January 28, an increase of over 2300%. A "grassroots rebellion against Wall Street" financial carnival shook the traditional financial system.

However, this victory that seemed to belong to retail investors quickly evolved into Robinhood's darkest moment.

The financial infrastructure that year was simply unable to withstand the sudden trading frenzy. According to the settlement rules at the time, stock trades required T+2 days to complete clearing, and brokers had to reserve risk margin in advance for users' trades. The surge in trading volume caused Robinhood's required margin to pay to clearinghouses to skyrocket.

On the morning of January 28, Tenef was awakened by his wife and learned that Robinhood had received a notice from the National Securities Clearing Corporation (NSCC) requiring it to pay up to $3.7 billion in risk margin, which instantly pushed Robinhood's financial chain to its limit.

He contacted venture capitalists overnight, raising funds everywhere to ensure that the platform would not be dragged down by systemic risks. At the same time, Robinhood was forced to take extreme measures: limiting the purchase of popular stocks like GameStop and AMC, allowing users to only sell.

This decision immediately sparked public outrage.

Millions of retail investors believe that Robinhood has betrayed the promise of financial democratization, criticizing it for bowing to Wall Street powers. There are even conspiracy theories accusing Robinhood of colluding secretly with Citadel Securities (its largest order flow partner) to manipulate the market in order to protect hedge fund interests.

Online harassment, death threats, and a barrage of negative reviews followed one after another. Robinhood suddenly went from a friend of retail investors to a target of public ire, and the Tenev family was forced to go into hiding and hire private security.

On January 29, Robinhood announced that it had urgently raised $1 billion to maintain operations, followed by several rounds of financing, ultimately raising a total of $3.4 billion. Meanwhile, members of Congress, celebrities, and public opinion relentlessly pursued them.

On February 18, Tenev was summoned to testify at a U.S. Congressional hearing, and in response to questions from lawmakers, he insisted that Robinhood's decision was driven by settlement pressure and had nothing to do with market manipulation.

Nevertheless, the questioning has never ceased. The Financial Industry Regulatory Authority (FINRA) conducted a thorough investigation into Robinhood, ultimately imposing the largest single fine in history—$70 million, which includes a $57 million penalty and $13 million in customer compensation.

The GameStop incident became a turning point in the history of Robinhood.

This financial storm has severely damaged Robinhood's image as the "retail investor protector," causing significant harm to its brand reputation and user trust. For a time, Robinhood became a "survivor in the cracks," both discontented with retail investors and under scrutiny from regulators.

However, this event has also prompted U.S. regulators to initiate reforms in the clearing system, pushing to shorten the settlement cycle from T+2 to T+1, bringing long-term impacts to the entire financial industry.

After this crisis, Robinhood pushed forward with the IPO that had been prepared long ago.

On July 29, 2021, Robinhood went public on Nasdaq with the ticker symbol HOOD, setting the IPO price at $38, valuing the company at approximately $32 billion.

However, the IPO did not bring the expected capital feast for Robinhood. On the first day of trading, the stock price opened lower and ultimately closed at $34.82, a decline of 8% from the issue price. Although there was a brief recovery due to a surge in retail investors and institutional buying (such as ARK Invest), the overall trend has remained under pressure for an extended period.

The divergence between Wall Street and the market is evident - it is optimistic about its role as a financial entry point for retail investors.