Franklin Templeton to Migrate Entire Product Suite to Blockchain

Franklin Templeton, a prominent global investment management firm, is poised to transition its entire product suite onto blockchain technology, according to Sandy Kaul, the firm's innovation head. This shift is part of a broader overhaul of financial market infrastructure, which Kaul believes will occur more rapidly than many anticipate. The migration to blockchain-based systems is driven by the efficiency and other benefits they offer over traditional account-based infrastructure.

Kaul envisions a future where financial institutions, central banks, and corporations will adopt wallet-based systems on top of blockchains. She predicts that the stablecoin market, currently valued at approximately $240 billion, could expand significantly as banks issue their own stablecoins and tokenized cash to remain competitive. This transition will likely be driven by traditional financial institutions rather than crypto-native players.

As stablecoins become a foundational piece of financial infrastructure, tokenized money market funds will also gain traction, acting similarly to savings accounts. Franklin Templeton has already launched its OnChain US Government Money Fund in 2021, which had assets under management of $740 million as of June 30. This fund is a testament to the firm's commitment to integrating blockchain technology into its financial products.

Kaul also highlighted that illiquid and difficult-to-process assets, such as collateralized loan obligations (CLOs) and private credit, are heading onchain to create operational efficiencies. Public equities and exchange-traded funds (ETFs) will also be tokenized, potentially eliminating the need for the ETF wrapper over time as smart contracts take over the functions currently performed by the wrapper.

When asked about the timeline for this transition, Kaul estimated that it could take within a decade. She noted that the rapid pace of technological innovation in the past 20 years suggests that significant changes will occur more quickly than people anticipate. Franklin Templeton's CEO has also expressed the belief that more transformation in financial market infrastructure will occur in the next five years than in the last 50.

Franklin Templeton is well-positioned to lead this transition, with a supportive executive team and board that are enthusiastic about the opportunities presented by blockchain technology. The firm has already built the necessary infrastructure to issue and program its own tokens, administer shareholder records, and offer new functionalities like intra-day yield and peer-to-peer transfers.

One of the biggest hurdles to overcome in this segment is finding the right balance between the traditional rigidity of know-your-customer (KYC) and anti-money laundering (AML) screening and the permissionless nature of blockchain ecosystems. Kaul believes that the final solution will likely sit somewhere in between, providing the necessary protection for consumers while discouraging bad actors.

Kaul also participated in a May SEC roundtable focused on tokenization, where she noted a more receptive environment within the SEC for responsible and effective policy for crypto ecosystems. The firm is excited about defining the regulatory pathway to intermix both securities and tokens, which would open up new distribution opportunities. Currently, there is a lack of regulatory clarity that prevents the distribution of ETFs or mutual funds on blockchain rails.

Kaul envisions a future where investors can hold both traditional securities like Apple stock and cryptocurrencies like Ethereum in the same portfolio, allowing for more diverse investment strategies. This would require regulatory clarity from the SEC to enable the distribution of such portfolios.