Franklin Templeton Positions Two Money Market Funds for Tokenized Finance Under GENIUS Act

Franklin Templeton has updated two institutional money market funds to better integrate with the tokenized finance landscape. The Western Asset Institutional Treasury Obligations Fund and the Western Asset Institutional Treasury Reserves Fund now support stablecoin reserve management and blockchain-based distribution. The changes align with the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a law enacted in 2025.

The Western Asset Institutional Treasury Obligations Fund (LUIXX) now invests exclusively in U.S. Treasuries with maturities of 93 days or less, positioning it for use by stablecoin issuers. This aligns with reserve requirements under the GENIUS Act and addresses growing demand for high-quality, short-duration collateral.

The Western Asset Institutional Treasury Reserves Fund introduced a Digital Institutional Share Class (DIGXX), enabling approved intermediaries to record and transfer share ownership on blockchain rails. This allows for faster settlement, 24/7 transactions, and smoother integration with digital collateral systems.

Why Did This Happen?

The decision follows an industry-wide push to integrate blockchain technology into traditional financial products. Franklin Templeton aims to modernize access to institutional liquidity while maintaining regulatory compliance. The firm has been investing in tokenization research and blockchain-based infrastructure since 2018.

Regulated stablecoin adoption is accelerating, with total supply now exceeding $310 billion. Institutional demand for liquidity products that function within digital market infrastructure is growing, prompting Franklin Templeton to adapt its offerings.

How Did Markets React?

The firm argues that traditional money market funds are already beginning to move on-chain, and the goal is to make them more accessible and useful for institutional clients. By prioritizing interoperability and flexibility, Franklin Templeton is enabling clients to deploy regulated funds across various platforms.

Roger Bayston, Franklin Templeton's Head of Digital Assets, emphasized the importance of modernizing distribution methods rather than reinventing the mutual fund. This approach supports greater choice for investors while maintaining regulatory oversight.

What Are Analysts Watching Next?

Analysts are evaluating whether tokenized funds will disrupt the ETF market. Bloomberg ETF analyst Eric Balchunas suggests that while blockchain infrastructure may improve efficiency, it is unlikely to disrupt the ETF industry in the near term. He noted that the ETF sector is operating at full strength, with new issuers entering the market at record levels.

The broader market is watching how regulatory frameworks evolve to support tokenized assets. Franklin Templeton's updates reflect a cautious approach that balances innovation with risk management. The firm has structured the changes to ensure that the funds remain SEC-registered and operate under traditional money market rules.

Market participants are also monitoring the implications of the GENIUS Act and other regulatory developments. Paul Atkins, U.S. Securities and Exchange Commission chair, has expressed confidence that a crypto market structure bill will reach President Donald Trump's desk this year. He emphasized the importance of regulatory clarity for the industry.

Key Takeaways

Franklin Templeton's updates highlight a growing trend in the financial industry: adapting traditional products for blockchain-based infrastructure. The firm's approach focuses on enhancing interoperability and accessibility while maintaining regulatory compliance. As the tokenized finance market continues to expand, asset managers are seeking ways to meet institutional demand for regulated products that function within digital market ecosystems according to industry analysis.