E19: Breaking down Robinhood's GameStop decision: Why did it happen and how can it be prevented in the future?

Public filings and market data show that Robinhood not only survived the January 2021 GameStop/“meme stock” crisis, it went public later that year and continues to operate as an active, large-cap, publicly traded broker. Robinhood Markets, Inc. (ticker: HOOD) is currently listed on a major U.S. exchange with a multibillion‑dollar market capitalization, indicating it has not undergone a Lehman Brothers/Bear Stearns–style collapse or bankruptcy and remains a going concern as of late 2025.

Because the prediction was that “they will get through this” and would not collapse like major failed firms in 2008, and because Robinhood in fact survived the GameStop stress period and remains in business years later, the prediction is right.

Robinhood not only survived the January 2021 GameStop/liquidity crisis, it continued to operate and substantially expand its business afterward. Evidence:

• Robinhood went on to complete a large IPO in July 2021, raising about $2.1 billion and listing as Robinhood Markets, Inc. (investors.robinhood.com)
• As of 2024–2025 it is reporting record revenues, positive net income, and ongoing product and geographic expansion (crypto, futures, advisory, UK/EU/Asia-Pacific, acquisitions like Bitstamp and TradePMR). (nasdaq.com)
• In 2025 Robinhood remains an active, growing public company (ticker HOOD), entering new areas such as prediction markets, with its stock included in major indices and still launching new ventures. (wsj.com)
• Although it has faced multiple regulatory fines related in part to the meme‑stock episode, these sanctions were financial and compliance-related; they did not shut down the firm, which continues normal operations. (reuters.com)

Since the prediction was that Robinhood would "ride it out" and keep operating after the GameStop turmoil—and the company clearly did so for years, growing and diversifying—this prediction is right.

Chamath was partly right that Robinhood would face substantial class‑action litigation over the January 2021 GameStop and other meme‑stock trading restrictions, but wrong about the company being "sued into oblivion."

What happened:

• By March 2021, Robinhood disclosed it had become aware of roughly 50 putative class actions and several individual actions in various courts specifically related to its early‑2021 trading restrictions, alleging breach of contract, fiduciary duty, negligence, antitrust, and securities violations—i.e., exactly the kind of suits seeking recovery of users’ trading losses that Chamath described.【0search4】0search6】 Independent reporting at the time likewise counted dozens of class actions tied to the GameStop halt.【0search2】0search9】0search11】
• These cases were consolidated in the multidistrict litigation In re January 2021 Short Squeeze Trading Litigation in the Southern District of Florida, with separate "tranches" for Robinhood‑specific state‑law claims, antitrust claims, and federal securities claims.【0search0】2search3】
• The MDL court dismissed the core Robinhood contract/fiduciary‑duty tranche, and in 2023 the Eleventh Circuit affirmed, holding that Robinhood’s customer agreement expressly gave it discretion to restrict trading and that the plaintiffs failed to state claims for breach of contract or fiduciary duty.【2search0】 The antitrust tranche was also dismissed, with the Eleventh Circuit affirming dismissal for failure to plausibly allege an unreasonable restraint of trade.【2search2】2search3】 Some federal securities claims survived a motion to dismiss in 2022, but those represent a narrowed subset of the original wave of lawsuits rather than existential liability.【2search1】
• Meanwhile, Robinhood completed a multibillion‑dollar IPO in July 2021 and remains an active, publicly traded company. It has paid various regulatory fines (including a record $70 million FINRA penalty in 2021 and roughly $30 million more in FINRA fines and restitution in 2025, plus SEC penalties), and it recently saw an SEC crypto investigation closed with no enforcement action.【0search5】2news12】2news13】2news14】2news15】 None of this resembles being litigated "into oblivion"; the company continues operating and raising capital.

Assessment:

• The narrow element of the prediction—"extensive class action litigation seeking recovery for losses from the restrictions"—did come true.
• The central thrust—that Robinhood would be "sued into oblivion" (i.e., existentially crippled or effectively destroyed by those suits)—did not. Most key claims were dismissed on the pleadings and appellate review, and Robinhood remains a functional, publicly traded broker with manageable (though non‑trivial) legal and regulatory costs.

Because the defining part of the prediction was that litigation would effectively ruin Robinhood, which clearly did not happen, the prediction is best classified as wrong, albeit with a partially accurate premise about the volume and type of lawsuits.

The prediction concerns the entire 2020s decade (“this decade is going to realize” a profound, broad shift toward decentralization in trading, communication, and building). That end point (December 31, 2029) has not yet occurred, so it’s too early to say definitively whether the prediction ends up correct.

Evidence so far shows meaningful but partial movement toward decentralization:

• DeFi and decentralized trading have grown substantially since 2020. As of Q2 2025, decentralized finance platforms hold about $123.6 billion in total value locked (TVL), with hundreds of protocols over $100M each, indicating a sizable decentralized trading and lending ecosystem. (coinlaw.io)
• Web3 and decentralized applications (GameFi, Web3 social, DAOs, tokenization of real‑world assets) have expanded, with millions of daily active wallets in GameFi and Web3 social by late 2024–2025 and ongoing enterprise experiments in blockchain-based finance and supply chains. (defi-planet.medium.com)
• Decentralized social/communication platforms have seen surges driven by dissatisfaction with centralized platforms (notably Twitter/X). Mastodon and other Fediverse platforms grew after Musk’s Twitter acquisition, and newer decentralized social networks like Bluesky (built on its own AT Protocol) reached tens of millions of registered users and significant daily activity during 2024–2025, often following controversial moves or outages at X. (en.wikipedia.org)

At the same time, there is strong evidence that centralized platforms remain dominant in how most people trade, communicate, and build online:

• Major centralized social and tech platforms (Meta’s apps, YouTube/Google, TikTok, X, Amazon, Apple, Microsoft, etc.) still command the vast majority of user time, advertising dollars, and infrastructure control. Recent antitrust cases explicitly describe a competitive landscape still dominated by large centralized firms rather than decentralized alternatives. (washingtonpost.com)
• Many decentralized platforms experience boom–bust user cycles and remain niche compared with mainstream centralized services, suggesting that a full “broad societal shift” has not yet clearly materialized.

Because:

1. The time horizon (the 2020s) is not yet complete; major shifts could still occur later in the decade.
2. Current evidence shows significant but not yet society‑wide displacement of centralized systems by decentralized ones.

…the fairest classification today is “inconclusive (too early)” rather than definitively right or wrong.

The prediction was that the Gavin Newsom recall effort in California would succeed in gathering enough valid signatures to qualify for the ballot, resulting in a recall election being held.

What happened:

• For the 2020–2021 recall effort against Governor Gavin Newsom, organizers needed 1,495,709 valid signatures (12% of the votes cast in the previous gubernatorial election) for the recall to qualify. (sos.ca.gov)
• On April 26, 2021, the California Secretary of State announced that this threshold had been met based on verified signatures reported by counties. (sos.ca.gov)
• After the statutory withdrawal period, the Secretary of State confirmed that 1,719,900 signatures remained valid—well above the requirement—and certified the recall petition on July 1, 2021. (sos.ca.gov)
• Following that certification, a gubernatorial recall election was officially called and held on September 14, 2021. (en.wikipedia.org)

Because the recall campaign did gather enough valid signatures, the petition was certified, and a recall election was indeed held, Friedberg’s prediction is right.

Evidence strongly supports Sacks’s view that the early‑2021 GameStop short squeeze ended badly for buyers at inflated prices.

During the meme frenzy, GameStop (GME) hit an all‑time closing high of about $86.88 on January 27, 2021, and an all‑time intraday high around $120.75 (split‑adjusted) on January 28, 2021.(statmuse.com) Contemporary reporting also describes the stock briefly exceeding $400 pre‑split at the peak of the mania.(businessinsider.com)

Within weeks, the squeeze collapsed: by February 2021 the average closing price was only about $17.89, a 67.9% drop for the month, and coverage notes the stock “plummeted to around $10 by mid‑February 2021.”(statmuse.com) That is a catastrophic outcome for anyone who bought near the late‑January highs.

Over the longer term, GME has never returned to its early‑2021 squeeze levels. Historical data show that from 2024–2025 the shares mostly trade in the $20–30 range, with the latest price around $21–22 as of late 2025, far below the January 2021 peak.(statmuse.com) Recent articles explicitly state that, despite occasional meme‑driven rallies, GameStop “has never returned to its previous highs.”(businessinsider.com)

Given the massive, rapid crash from the squeeze highs and the persistent multi‑year underperformance relative to those peak prices, the prediction that the episode would “end very badly” for those buying at inflated squeeze valuations is borne out by the data.