London (CNN Business) - Earlier this year, when GameStop(GME) shares exploded out of the blue, all eyes were on Robinhood, the commission-free trading app that was helping millions of amateur investors gain access to financial markets. Coordinating on social media, the app's users showed an uncanny ability to supercharge a wide array of stocks.
Now, Robinhood isn't just minting so-called "meme" stocks. It's become one itself.
What's happening: The company's stock got off to a rocky start when it made its Wall Street debut last week, finishing its first day of trading down 8% from its initial public offering price. Then, this week, shares took off, skyrocketing 24% on Tuesday and an eye-popping 50% on Wednesday.
According to data from researchers at VandaTrack, Robinhood was the third most-bought stock on retail platforms Wednesday, securing $50.5 million in net purchases.
Some context: VandaTrack notes that Robinhood's gains are still dwarfed by the original meme stocks, GameStop and AMC Entertainment. At the peak, retail investors bought $352 million worth of shares of the struggling video game retailer and $600 million of stock in the movie theater chain.
Still, Robinhood has been benefiting from a host of factors. Options trading for the stock started Wednesday, and prominent fund manager Cathie Wood has revealed sizable purchases in recent days. Robinhood has also actively courted everyday investors who may be interested in buying shares.
There could still be "room for the move to continue," VandaTrack analyst Ben Onatibia said. He noted that the jump is unusual, however, which makes the trajectory hard to predict.
"After a poor listing, retail demand is surging, something extremely rare with IPOs," he said.
On Thursday, the stock tumbled after Robinhood said in a filing that investors including venture capital firm Andreessen Horowitz were selling nearly 98 million shares.
On the radar: Meme stock or otherwise, Robinhood could eventually run into trouble purely based on its business model.
Robinhood earned 81% of its first quarter revenue through what's known as "payment for order flow," which is increasingly coming under regulatory scrutiny.
Breaking it down: The reason Robinhood doesn't need to charge commission is because it makes money in a different part of the trading process. When an investor places an order to buy a stock on its app, Robinhood routes the order to a market maker like Citadel Securities, which then handles execution — and pays Robinhood for that privilege.
Scrutiny of this process has increased since the GameStop frenzy. While the company argues it's a crucial part of its efforts to democratize trading, Securities and Exchange Commission Chair Gary Gensler said in June that payment for order flow raises "questions about whether investors are getting best execution," and noted that directing huge swaths of trades to a few select market makers could "increase potential system-wide risks."
Should regulators take action, Robinhood's business could be in jeopardy.
"An outright ban on payment for order flow would immediately and severely impact Robinhood's revenue," research firm New Constructs said last month. "We don't believe Robinhood could continue offering commission-free trading, which would put the company at a significant disadvantage to rivals Fidelity and Charles Schwab."
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