Jenny Johnson, chief executive of Franklin Templeton, said it is important that the firm’s tokenized money market fund runs on a public rather than a private blockchain, even though the fund’s assets were overtaken by Blackrock’s rival fund.

She spoke at the Consensus 2024 conference in Austin, Texas on 30 May and explained how the asset manager became involved in digital assets. Johnson’s grandfather founded Franklin Templeton 77 years ago, and the family still owns just over 40% of the asset manager.

“I think that’s important because, unlike a lot of public companies, we really do think generationally,” she said. “When I looked at blockchain, I said this is going to be transformational and we better make sure we understand it.’

Initially, efficiency gains were the main attraction of using blockchain. Johnson gave the example of Franklin Templeton having to employ hundreds of people to perform reconciliations between its internal systems, before having to reconcile with external counterparties. Therefore, blockchain solves two problems by providing a general ledger and a source of truth.

“Once you solve the source of truth, then the timing of when truth is updated changes and this can drive atomic settlement,” Johnson added. “If you can have the money transact at the same time, and you validate the two parties, you are going to take out huge costs.”

She argued that the collapse of FTX would not have happened if the crypto exchange had been built on a public chain. Over time, Johnson expects regulators to recognise that they have more information on public chains, because they can see the transactions and use artificial intelligence to evaluate any that look odd.

Tokenized funds

Franklin Templeton launched a tokenized money market fund in 2021, after working with the SEC for approval.  In April this year Franklin Templeton said it is introducing new features to the first U.S.-registered mutual fund to process transactions and record share ownership on a public blockchain, as shareholders can complete peer-to-peer transfers.

The Franklin OnChain U.S. Government Money Fund  invests at least 99.5% of its total assets in government securities, cash and repurchase agreements collateralized fully by government securities or cash, and had more than $360m in assets under management on 31 March 2024. Each share of the fund is represented by a BENJI token and the fund’s transfer agent maintains the ledger of share ownership using blockchain technology to record transaction activity.

In March this year, BlackRock launched its USD institutional digital liquidity fund (BUIDL) on the ethereum public blockchain, which provides qualified investors with the opportunity to earn U.S. dollar yields by subscribing through Securitize Markets. 

Just over 1mo into @BlackRock BUIDL and its already the largest tokenized onchain treasury product w/ $375m

Vision for @reserveprotocol is that anyone can bundle together tokenized assets like equities, bonds, commodities, and money markets to create diversified,… pic.twitter.com/f5UVCCG0qN

— Thomas Mattimore (tmattimore.eth) (@mattimost) May 1, 2024

Johnson said: “Ours is the one that runs on a public blockchain, the other shadows the public blockchain. We did shadow for the first six months, and then the SEC got comfortable enough to allow us to just run it on the public blockchain.”

Running the fund on the Stellar blockchain allows yield to be paid intraday yield through the BENJI. Yield is 5.1% and Johnson said if holders sell a token in the middle of the day, they earn yield for a number of hours and the buyer receives the rest.

“That is not available unless you are on the public chain, because that is how precise it is,” she added. “We view this as being a way to deliver traditional assets and being able to create exposures to  traditional ETFs in the market that can be held in a digital wallet.”

As Franklin Templeton wanted to run the fund on a public chain, it had to build a shareholder recordkeeping system on-chain, and a hot and cold storage wallet. Johnson said: “Our view is that this is going to be a way in which a lot of people get their investment exposure in the future.”

As a result of having a tokenized fund, Franklin Templeton started to buy blockchain loans on-chain and became a node validator. Nodes can can create, send, and receive blockchain data they validate, record, and broadcast each transaction on the network. Franklin Templeton now runs 30 nodes on 12 different chains.

“If you are not participating in this system and seeing the visibility in transactions, you will  have a hard time providing investment advice,” said Johnson. “You are at such a disadvantage by not being a node validator.”

Franklin Templeton’s experience as a nice validator also led to it producing research on 30 tokens, which Johnson said is as rigorous as all the other research the firm produces.

The asset manager is also using the capability and infrastructure it has built in other regions. For example, in the United Arab Emirates Franklin Templeton has partnered with Dubai-based Medad Holding to launch a yield coin, which Johnson described as a hybrid of a stablecoin and a money market fund.

“You can’t do that in the US today, but they have the regulatory infrastructure in the UAE,” Johnson said.

Crypto ETFs

Franklin Templeton was one of 11 asset managers that launched a bitcoin exchange-traded fund after the US Securities and Exchange Commission approved the ETFs.

Johnson said her father, who is 91 years old, said he thought that it would be a mistake to roll out a bitcoin ETF. One of her arguments was that $8 trillion was transacted in bitcoin in 2022, more than $6 trillion transacted on Visa, and $2.5 trillion on MasterCard.

“I think bitcoin is becoming better understood and driving more demand,” Johnson added. “ For us, it was our fastest growing ETF.”

Bitcoin ETFs see record inflows as BlackRock's IBIT leads the charge, outshining competitors with a staggering $24.5 million influx. Ethereum ETFs await their turn in the spotlight as SEC approval looms. The crypto market heats up, but who will emerge as the ultimate ETF titan?… pic.twitter.com/GPypTySBbJ

— Ouinex (@ouinex) May 31, 2024

The firm has also applied to the SEC to launch an ethereum  ETF and is waiting for approval to start trading. Franklin Templeton also has a venture capital fund investing in digital assets, and Johnson said the firm will launch a second fund.

“The most important message is that we are participants in this ecosystem and we view ourselves as being able to help bridge the old and new rails,” she added.