Inside Franklin Templeton’s crypto leap

• Key insight: Franklin Templeton has been actively launching crypto projects since 2021, while most banks have been waiting to enter the decentralized finance space.
• Expert quote: “There’s a potential threat to banks if they’re still working with a model of the world or of competition that’s been rendered out of date by technology and the world revolving around them.”—Robert Crossley, Franklin Templeton’s global head of industry and digital advisory services

The genteel, 75-year-old investment firm Franklin Templeton was named after Benjamin Franklin “because Franklin espoused frugality and prudence when it came to saving and investing,” according to Wikipedia.
It was a traditional Wall Street firm until 2018, when it began internal development and research into digital asset networks and blockchain infrastructure. In 2021, it launched the first U.S.-registered mutual fund on a public blockchain, the Franklin OnChain U.S. Government Money Fund. In 2022 it expanded to Ethereum, Polkadot, Cardano and Solana, launched a blockchain fund and introduced digital asset separately managed accounts. This year, it created a dedicated cryptocurrency division, Franklin Crypto, following the acquisition of crypto investment firm 250 Digital.

Processing Content

In an interview, Robert Crossley, Franklin Templeton’s global head of industry and digital advisory services, explained why the company has moved so quickly into decentralized finance.

Five years ago, Franklin Templeton jumped on the digital asset bandwagon. What is behind that? Do you have leaders who are very gung ho about this, or is there something about the organization that enables you to move quickly on innovative emerging technology?

ROBERT CROSSLEY: You mean, is there something in the water? 

Exactly. 

ROBERT CROSSLEY: Jenny Johnson, our CEO, used to run Ops and Tech [when she was president and chief operating officer of the company], so she understands that from the inside out as opposed to from the outside in. And when Sandy [Kaul, head of digital assets and innovation at Franklin Templeton] and I were at Citi, one of the things that we used to do was interview 50 to 60 leaders every year across across all parts of the industry, and we would do 500 or 600 meetings a year with boards and and C suites, helping bring that breadth of perspective to bear on their individual situation. That’s one of the ways that Sandy got to know Jenny, through talking about our perspective. At that same time, Jenny was thinking about how the whole financial industry is based on records and recording who owns what and changes of ownership, and that there must be something here that we can use to benefit clients and the industry. Those two currents came together and reinforced each other. 

One of the reasons Sandy and I came to Franklin was because out of all of the asset managers, Franklin was so far ahead in terms of their thinking, in terms of the infrastructure they built, the inside-out understanding of not just the technology itself, but the implications of the technology. Because everyone’s very good at talking about the technology, but it’s really how that affects existing client business models, how it enables you to add value in different ways, thinking through the big picture. 

Franklin Templeton’s latest digital asset announcement was about ETFs that redirect stock dividends into bitcoin. Why are you launching this? What are the advantages and potential risks to investors? 

ROBERT CROSSLEY: Different investors value different things, so part of the challenge of what’s happening with crypto and decentralized finance is that in a traditional world, everyone would buy the same asset for the same reasons. In the crypto or decentralized finance world, where the asset can be used differently, it can offer different rights, it can offer different benefits, the dividend can be paid in a different way. There are some constituencies that will want that, and there are some constituencies that don’t, and we shouldn’t lump the two together. 

In a money market fund where you already have quick turnover and liquidity, what is the advantage of tokenization?

ROBERT CROSSLEY: Everyone talks about tokenization as if it exists in a vacuum, and it always tickles me that people talk about real-world assets when they should be talking about real-world benefits. So why should I care about it? The reason that we’re so excited about Benji, our money market fund, is because it’s natively tokenized. There is no off-chain book of record that gets reconciled to, it isn’t duplicating the existing infrastructure. Then, if you can record transactions in real time, and you can record who owns what in real time, that’s what enables us to pay interest in real time, to calculate interest in real time, which for a treasurer or anybody, it’s an enormous deal to be paid the right amount of interest for the exact amount of time that you own the fund. It doesn’t leak into that black hole between trading and settlement or over the weekend. Franklin is unique in being able to do that. The reason why it’s such a big deal for our funds being able to use it is that it enables them to be more efficient about their cash management, which means there’s more funds to invest for the end investor, and it’s reducing inefficiency and it’s passing that efficiency on to the clients.

So Franklin Templeton is the only firm that can calculate interest in real time on a money market fund because of this?

ROBERT CROSSLEY: Correct. A traditional money market fund accrues interest daily and it usually pays it out monthly. Our fund is unique in that it pays interest out daily, weekends, Christmas, 24/7/365, because it just mints a new token and there is no duplication. There’s no off-chain legal book of record. 

Many bankers are terrified that they may lose their deposits to stablecoins and other kinds of digital assets, that the increased adoption of tokenization and stablecoins will make it easier for their deposits to be moved somewhere else. What do you think? 

ROBERT CROSSLEY: From a bank’s point of view, if you lose control of the cash, you lose control of the relationship, because that is your entry point to the relationship, and that’s your entry point to add value. In the past, banks have thought in terms of competition for deposits, because that’s the key to the whole relationship.

In a non-tokenized traditional world, there were large pools of assets which were essentially at rest. They were used very inefficiently, and certain parties benefited from that and are optimized to that status quo, which is fine.

One of the big differences with decentralized finance is that it enables the active ownership of assets. You can do things in real time, and you can do much more with them. Banks have come from a world where you have separate operating balances and deposit balances, and you get paid nominal, minimal interest on the operating balances. You’ve got to pre-fund things because of different lags in settlement times. 

What’s happening with blockchain technology is that distinction between operating balances and deposit balances is being dissolved because there are different forms of money appearing that can perform many different functions. The way that you and I think about money traditionally is it’s fiat currency in different forms. 

What we’re moving rapidly towards is a world where there are these different, competing forms of money that each have a very different balance of strengths and weaknesses, or benefits and costs in different contexts. So, for instance, if I’m an individual in an emerging market and want to repatriate my money back home, then I might be willing to use a stablecoin, swap it for my fiat currency. I don’t mind the relative lack of protections. I don’t mind about the fact I’m not getting interest. All I know is I’m not paying 6% to repatriate my money to my parents or to my home country. So that’s a real-world benefit. Whereas if I’m an institutional asset owner, I have to have regulatory protection around my money. I have a fiduciary responsibility and legal responsibility to use a regulated asset. 

There’s a false dichotomy between thinking about this as a war or a competition between tokenized deposits and stablecoins, in that we are moving very quickly towards a world where we’ll have a proliferation of types of money, and a treasurer will store their money in whatever is the optimum form for them in terms of safety, interest rates, movability, and convert it to the currency of payment right at the point of payment, to maximize their safety and interest. Whereas at the moment we just leave the money in one form, either a stablecoin or a fiat currency, for its entire life. 

The industry used to think that stablecoins were going to be the bridge between decentralized finance and traditional finance. The reality is that all of the money that moves into stablecoin stays there. It’s the operational balances for decentralized finance for all the the blockchain economy, and one of the reasons why we’re so excited about Benji, our natively tokenized money market fund, is that that represents a bridge between the two worlds, because you have a regulated tokenized money market fund that is also machine readable in decentralized finance.

It seems that the whole digital asset world is still fragmented. There’s a lot happening on Ethereum. There’s a lot happening on Solana. The DTCC is offering tokenized stock on the private Canton network. Do you think that these on-chain networks will all eventually link or merge in some way, or will there continue to be different networks that are used by different sets of users for different purposes and there’s no need to to bring it all together?

ROBERT CROSSLEY: Mostly the latter, there’s no need to bring them together. Some people overlook the significance of what the DTCC has done. Until the DTCC came along with their announcements, what had previously been happening was what I call bottom-up tokenization. So tokenization of individual securities and individual issues, and there’s almost an implicit belief that if we can only tokenize enough of these individual issues, then suddenly everything will catch fire and everything will work. The real significance to DTCC is the top-down tokenization, so the ability to offer the choice of whether you use traditional rails or use blockchain rails. Different chains absolutely have very different properties and characteristics. They have very different costs, and I think that’s underappreciated just how different they are in terms of their characteristics. We run our money market funding across 10 public chains already, and we’re constantly investigating which chains are suitable. 

I think the different characteristics of chains will develop into specialisms. So you could characterize Ethereum as the institutional grade, very secure but high cost and relatively slow chain, which is fine in certain contexts. 

And so, when banks think in terms of their next-gen strategy, there’s a really important dimension: straight to wallet, because if you take a step back from banking, what’s really going on is that you’re moving from a world that’s been exclusively account-based to a world where you have wallets and accounts, and ultimately wallets are going to displace accounts because of their superior functionality, then you are going to have a wallet that contains all of your assets, all of your liabilities, all of your rewards, all of your cash. It’s a single locus of control for your life, or your institutional life. So, from a bank competition point of view, we are all going to be competing to service the wallet because that is where all the assets and liabilities and everything else is going to be controlled from. So it’s a bit like your mobile phone on steroids. 

You’re already seeing agents be embedded into wallets to essentially automate some of the decision making and the transactions. And really this is about the convergence of money and assets and on chain and online and AI and blockchain. Because blockchain adoption has really been driven by payments and money, it hasn’t been in the sort of traditional investment management industry. It’s been in payments because that’s where there’s the obvious real world benefit. So as more assets can perform the role of money, as agents increasingly will drive agentic payments, agent to agent payments, or agent to business payments, those micro payments are going to need blockchains to run on just to have the necessary scalability and speed. And at the same time, if you look at the economy around us, everything increasingly is about personalization. How can I personalize the delivery of my goods or services to the client. In order to personalize, you’ve got to know that client, and you’ve got to have data on them to understand them, to keep that data safe, and to be able to prove that that data has been kept safely. That will increase demand for blockchains because a blockchain is just a record keeping system, and that data that’s used to train the AI agent to then personalize your services or your agent. That’s going to be an additional source of demand to record transactions on blockchains. 

Banks have to think about value in a much more three-dimensional way. It’s not so much about losing deposits, it’s about losing relevance. Banks still have a central, fundamental role to play in the financial system, but they have to rethink how they add value using new technology and how they add more value than the new competitors who don’t necessarily have the same legacy technology stack and legacy thinking.