Franklin Templeton is enabling peer-to-peer transfers in its on-chain U.S.-registered mutual fund while Archax, the UK FCA-regulated institutional digital asset exchange, broker and custodian, has added BlackRock to its tokenized money market fund offerings.

On 25 April 2024 Franklin Templeton said in a statement that it is introducing new features to the first U.S.-registered mutual fund to process transactions and record share ownership on a public blockchain, which it launched in 2021. Shareholders can complete peer-to-peer transfers of the Franklin OnChain U.S. Government Money Fund on the public blockchain.

The 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 has 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.

Roger Bayston, head of digital assets at Franklin Templeton, said in a statement: “We are excited that BENJI token holders will have the ability to transfer shares amongst each other. Eventually, we hope for assets built on blockchain rails, such as the Franklin OnChain U.S. Government Money Fund, to work seamlessly with the rest of the digital asset ecosystem.”

Larry Fink, chairman and chief  executive of BlackRock, has said crypto exchange-traded funds are the first step in the technological revolution in financial markets, and the second step will be the tokenization of every financial asset.

In BlackRock’s results call for the first quarter of this year, Fink said the asset manager is continuing to scale its products to democratize access to new strategies, increase transparency and drive cost efficiency. In March 2024, BlackRock launched its first tokenized fund and made a minority investment in Securitize, a blockchain-based tokenization platform.

“This builds on our existing digital asset strategy,” said Fink. “We’ll continue to innovate in new products and wrappers, all with the aim of providing greater access and customization to each and every of our clients.”

BlackRock tokenized fund

BlackRock’s USD institutional digital liquidity fund (BUIDL) was issued on the ethereum public blockchain and provides qualified investors with the opportunity to earn U.S. dollar yields by subscribing through Securitize Markets. The asset manager said investors gain important benefits from the issuance and trading of ownership on a blockchain, including instantaneous and transparent settlement, and allowing for transfers across platforms. BNY Mellon enables interoperability for the fund between digital and traditional markets.

Subsequently FalconX, an institutional digital asset prime broker and FalconX Bravo, the first cryptocurrency focused CFTC-registered swap dealer, said in a statement that it will integrate the BUIDL onto its trading platform to enable clients to post the fund token as collateral to secure loans and collateralize derivatives positions.

Raghu Yarlagadda, co-founder and chief executive of FalconX, said in a statement: “At FalconX, we believe that most of the world’s value will be tokenized-enabling greater liquidity and expanding access to financial instruments around the globe. We look forward to helping usher in the next stages of digital asset adoption.”-

On 23 April 2024 Archax said in a statement that the BlackRock ICS US Treasury money market fund to its tokenized fund offerings, in partnership with the HBAR Foundation. In 2023 Archax launched tokenized access to money market funds from abrdn, the UK fund manager.

Archax tokenized the the BlackRock fund on hedera, the open-source, proof-of-stake blockchain. The firm said that through creating a secondary market for the tokenized instruments, Archax can provide investors with the benefit of almost instantaneous transfer of shares throughout the day, and that the tokens can also be used for collateral instead of just traditional subscriptions/redemptions.

Ami Ben David, chief executive and co-founder of Ownera, said in a statement that using an Ownera router allows the sell side, the buy side and exchanges to route transactions to Archax’s tokenized money market funds.

“This is another step towards realising the vision we share with Archax and other partners across the ecosystem, of a global institutional tokenized assets ecosystem with market-wide access, distribution and liquidity,” he added.

Graham Rodford, chief executive and co-founder of Archax, said:

(2/18) We believe all financial assets are moving on chain. Equity, debt, funds etc etc, you name it, we think it is heading there.
Since 2018, we’ve been carefully navigating the regulations to the point we are at now, where everyone is talking about RWA.

— Graham (@Grodfather) April 24, 2024

(4/18) I’m going to write this generally to avoid being jurisdiction specific, so please forgive any local regulatory/legal nuances you may have.
Issuances of financial assets have records of ownership. So if I set up a company, I usually have a “cap table” showing the owners.

— Graham (@Grodfather) April 24, 2024

(6/18) Often the entity on the cap table is a custodian on behalf of an investor. This is the legal title holder who sits on the cap table holding the asset for the UBO. There can be many chains of custodians both local and international, or CSDs.

— Graham (@Grodfather) April 24, 2024

(8/18) A lot of our thinking is similar to that captured by https://t.co/qkpnsRzmMM in their blueprint for UK fund tokenisation.
Anyway, the point is, when people talk about tokenising a fund, there are a bunch of ways to achieve it.

— Graham (@Grodfather) April 24, 2024

(10/18) In reality that is difficult for a bunch of reasons, which include cost, local law/regulations and the way custodians and investors interact with products.

— Graham (@Grodfather) April 24, 2024

(12/18) In the case of both @abrdn and @Blackrock, Archax (to the knowledge of both investment mgrs) has been instructed by our clients to invest in their funds. Therefore, from the investment manager’s perspective, they see our nominee company as the legal title holder.

— Graham (@Grodfather) April 24, 2024

(14/18) We call these beneficial ownership tokens "BoTs".

BoTs are still securities (in UK at least) that can be used in many of the same ways as natively digital tokens.

— Graham (@Grodfather) April 24, 2024

(16/18) When working directly with an investment manager, Archax will always need to open accounts and may also have other agreements with them too. Therefore, the investment manager always sees Archax investing.

— Graham (@Grodfather) April 24, 2024

(18/18) Neither objected, hopefully due to our integrity and regulatory permissions.
I encourage you, wherever possible, to read official press releases associated with any news and you will always find ours (and maybe some other interesting stuff) on @archaxex or @archaxcrypto.

— Graham (@Grodfather) April 24, 2024

Rodford said that a client had asked Archax if they could invest in the BlackRock money market fund and Archax tokenized that interest in the fund.

The BlackRock money market fund is held in Archax’s fully regulated custodian which is insolvency remote, and the firm then issues a token backed by that custody. Archax can hold the tokens or send them to permission wallets.

“One of the core features of hedera is that you can make sure that you can only send tokens to permissioned wallets, and the person receiving them can make sure there was permission in the incoming token,” Rodford added. “Hedera has some pretty cool features for institutions in that it has an auto blocking function and only allows permissioned people.”

There is also a know-your-customer/anti-money laundering process behind each wallet that holds the fund.

Rodman said Archax is chain agnostic but hedera also has fixed fees which is also useful for institutions, who do not want to build a business model around a chain with fluctuating fees. Hedera also has a governing council and Abrdn, Archax’s largest external shareholder, sits on the council. In addition, he said hedera is one of the most sustainable blockchains and is even carbon negative.

Cheers @JoshRoomsburg for taking the time to chat through the latest initiative from @ArchaxEx with our partners at @OwneraIO. https://t.co/TomJHuCBTk

— Graham (@Grodfather) April 25, 2024

Rodman continued that the tokenized abrdn and BlackRock funds will be automated into Archax’s  workflow soon, so investors can buy them alongside crypto on the exchange.

“We have other investment managers coming in the future,” said Rodman. “There are actually a couple of instances where we are working with them to tokenize whole funds, but for the most part we are a participant in a pre-existing fund.”We are just seeing so much demand for money market funds where people are earning a yield on their assets.”

Archax is working on managing the lifecycle of funds, and other tokenized assets, so investors can receive distributions of interest or cash, or be able to vote, on chain and Rodman hopes that tokenized funds will eventually be distributed like traditional products.

“These operational benefits are why so many financial institutions are looking at tokenization,” he added. “There is a whole array of efficiency gains from using a blockchain which is a huge game changer for the industry.”

Archax has been building a relationship with BlackRock for years and Rodman said the fund manager was aware of the tokenization. 

“They couldn’t have dealt with everything more professionally,” he added. “The BlackRock team is ahead of the game compared to a lot of other investment managers.”

Investors can already trade crypto with Archax 24/7, but for tokenized securities that ecosystem has to be built including clearing houses and central securities depositories. 

“Some of that stuff is coming but it’s arguable whether everyone wants 24/7 markets,” said Rodman.