Franklin Templeton to Embed Tokenized Assets in ETFs
(Bloomberg) — Franklin Templeton is preparing to put tokenized assets inside conventional investment funds after receiving what the firm says is the first US regulatory clearance for digitally native products to be used within traditional funds.
The firm plans to use its tokenized money-market fund inside ETFs and mutual funds, either as a holding or as collateral, according to a letter posted by the Securities and Exchange Commission and a company executive. That means investors in otherwise conventional funds could end up with tokenized assets in their portfolios without having sought them out.
The move — expected to take effect as early as the fourth quarter, though it could happen sooner — marks a new stage in Franklin’s blockchain strategy. The asset manager has already worked to put traditional ETFs onchain and distribute them through crypto wallets. Now it is bringing tokenized assets inside the funds themselves, with the potential to optimize liquidity, cash holdings and yield.
“We want our funds to experience the efficiency of having a better money market fund option: manage more precisely, capture more of the yield, better and more tightly manage how much cash liquidity they have to hold,” said Franklin’s Sandy Kaul, the head of digital assets and innovation at the firm.
Via tokenization, traditional assets like stocks and bonds are represented by tokens on digital ledgers. Wall Street firms have been stepping up such efforts, attracted by the prospect of faster settlement, round-the-clock transactions and more efficient use of capital. The market value of tokenized assets has surged over the past year to roughly $38 billion, according to data provider rwa.xyz, as firms including BlackRock Inc. and Bank of New York Mellon Corp. expand their efforts.
The Franklin move, however, takes tokenization beyond simply creating blockchain versions of traditional investments into the day-to-day management of conventional funds. The SEC cleared the way for Franklin funds to use the Franklin OnChain U.S. Government Money Fund, known as BENJI, for instance, as a cash position or collateral. A fund could hold tokens as soon as they are “onboarded,” said Kaul, though the step still requires approval from the funds’ boards.
The potential reach is substantial. Franklin runs over 130 ETFs globally, with a combined $82 billion in assets, while its mutual funds hold about $790 billion, according to data provided by the firm. All in, Franklin’s tokenized money market funds have $2.6 billion in assets under management.
“This is the first time the SEC has said a digitally native product can be used in traditional financial products,” said Kaul. Franklin plans to issue additional tokenized products that could eventually be used as cash or collateral across its fund lineup, she added.
