Robinhood didn't have enough cash on hand for the business they are in.
It's not that brokers are required to wait for settlement. They can pay out as soon as the transaction is logged. They have the option of delaying until settlement, but big customers don't like that, so, usually, they don't. Online-only brokers tend to be sleazier about this.
No, the broker is borrowing against their own assets. They already did the transaction. They just haven't been paid for it yet. It's their accounts receivable problem, not the customer's. That's what it means to be a broker, rather than an exchange.
Since brokers usually have transactions flowing in both directions, it's usually a wash.
Except that’s not “what being a broker is”, because not all brokers offer that, and not to all clients. And if you can remember back to your original comment, you were calling exchanges sleazy for not having insta-withdrawal (which they can’t in the regulated markets because of settlement time), and now you recognize this is a service provided by brokers as an abstraction on top of the actual exchange, not what said (non-shady) exchange actually offers.
Furthermore, the broker is taking a risk by extending that credit. If it were riskless, there wouldn’t be the 2 day settlement period or the requirement to post collateral (whose necessity everyone accepts with an eyeroll at those who don’t get it on the Robinhood/GME threads).
It's not that brokers are required to wait for settlement. They can pay out as soon as the transaction is logged. They have the option of delaying until settlement, but big customers don't like that, so, usually, they don't. Online-only brokers tend to be sleazier about this.