Q&A: r/WallStreetBets founder on the convergence of trading and social media

Retail investing had a watershed moment earlier this year when investors coordinated on the Reddit page r/WallStreetBets to pump the value of video game retailer GameStop’s shares. A meme stock was born, and the forum, which boasts close to 11 million members at the time of writing, has continued to rattle markets.

Incumbent market players have adapted to memes' influence on the stock market and now even try to predict the next stocks that will be targeted. Reddit’s own identity is now strongly associated with the meme stock craze; it raised $700 million in a funding round led by incumbent broker Fidelity in August.

Insider Intelligence spoke with the founder of r/WallStreetBets, Jaime Rogozinski, about the role the forum played in the meme stock mania and how he plans to integrate social media components into the retail investing experience with blockchain.

The following has been edited for brevity and clarity.

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Insider Intelligence (II): What do you think is behind the meme stock mania?

Jaime Rogozinski (JR): Some investors rely on Robinhood’s commission-free model to trade and don't care about the ramifications from the payment for order flow model. They use complicated option strategies that don't usually work because commissions pretty much eat your entire profit margin when there’s really low risk. But Robinhood’s commission-free offering lets you do it.

Now with meme stocks, you have people who take $1,000 and turn it into $100,000 overnight. Famously, Keith Gill (aka, “Roaring Kitty”) did this by turning his $50,000 worth of GameStop shares into $50 million. These people don't care if someone is front running. They don't care if they get the trade a few cents cheaper. I've met people who have been more successful trading meme stocks than professional technical traders. Meme stock traders are a new segment of market participants and they can coexist with all the other types of investors, like high-frequency traders or fundamentalists like Warren Buffett.

I often get the question, "Why does it make sense that these guys are buying that stock based on a funny picture?" When the question really is, "Well, why does it make sense that a high-frequency computer buys a stock and then sells it 4.5 milliseconds later?" There's no more fundamental analysis from the computer than there is from the meme stock trader—or the technical one for that matter.

II: How are you planning to integrate social media components in trading?

JR: For as long as I can remember, people have tried to integrate social media or networking components to trading. And since the GameStop saga, we’ve seen a strong push for this.

We at r/WallStreetBets are taking steps toward that by launching what we call exchange-traded portfolios (ETPs):

• We launched WallStreetBet tokens back in April. People can buy and use them to vote on what should be in these ETPs. These ETPs can comprise both regular equity assets and crypto assets. So for the first time, you'll be able to buy an ETP called, say, Combo, and it can have Ethereum, Dogecoin, Tesla, Microsoft, and Samsung all in one.
• When the ETP is created, it's put it up on the blockchain, and anybody can invest in it. We're working on creating the first ETP that was voted on, which will be released in the coming weeks.
• In addition, token holders can vote to rebalance the ETP frequently. Everything's done automatically. There's no human interaction with this. And the ecosystem can trade 24 hours a day, seven days a week.

In terms of revenues, this is a decentralized project. Right now, we generate revenues from selling the coins, and we're spending those revenues on programmers to build this thing out. But this is a project for the people. There are revenue streams that can be tapped into if we need to. But the core of this system is not “Jaime's going to profit.” This is an autonomous organization.

That said, this thing is growing to the point where we need to formalize our organization for legal purposes and to make the partnerships we need. So we’re actually going to create a separate business with which we can create other revenue streams, like merchandise.

II: Do you see other applications of blockchain technology in trading becoming more widely adopted?

JR: We're going to get the best of both worlds. Regular Wall Street's got a lot of things that are wonderful for it, but there's a lot of room for improvements:

• 24-hour trading. It’s almost unforgivable that they don't have that. And it’s not because I want to be trading at 3:00 in the morning. It’s because financial institutions with tons of money endure massive risk when the market's closed. There's no reason why you can't have the computers just trading after hours. The two-day settlement is an archaic process that was inherited from the days where certificates were sent on horseback across Manhattan.
• Tokenization. You can tokenize all sorts of assets that were not necessarily tradable before but can now be priced on a blockchain. For example, if you like gambling, you can buy a tokenized stock based on how many points a soccer team is going to score. That's not a practical example of what can be done, but it's an imaginative one. If you can tie a number based on a sports score to an asset, then you can really do all sorts of incredible things.

I'll give you another example, which I love: automated leverage.

• If I want to buy a 3X leveraged gold ETF on Wall Street, I can do that. But whether I go long or short 3X ETF, I'm going to lose money. Even if I buy both of them, my investment's going to go to zero because of this nasty side effect called volatility decay that makes them go to zero in the long term, especially in sideways markets like gold.
• I went on a blockchain exchange and I found a 3X Bitcoin ETF. Same deal—bear and bull. But I learned that blockchain, thanks to smart contracts and using programmable logic, can mitigate the effects of volatility decay by putting a variable component into the leverage.
• This means if Bitcoin moves sideways, this thing's not going to be very leveraged. And if Bitcoin starts breaking out of the smart contract’s range, then it's going to turn the leverage up to 4X, which allows you to compound your gains. That is insanely brilliant from whoever programmed it. And the fact that it doesn't exist on regular Wall Street blows my mind.
• So in theory, you could buy an ETF on the blockchain that leverages assets other than crypto, like gold, which has this automated leverage component. I now can make the exact same investment that I would have made on my Robinhood account, and I can do it on the blockchain—and it's straight up better. That is what I'm excited about rather than the price of Bitcoin.