Franklin Templeton Pushes for Tokenized Assets in $790 Billion Mutual Fund

[Block Media Reporter Ham Ji-hyun] Global asset management firm Franklin Templeton has begun efforts to utilize blockchain-based tokenized assets as part of its internal management assets for existing exchange-traded funds (ETFs) and mutual funds.

While the focus has previously been on bringing traditional assets onto the blockchain, the new plan aims to incorporate already tokenized financial products as cash assets and collateral within existing funds. This marks a significant step where tokenization goes beyond being a separate investment product and enters the 'back-end infrastructure' of traditional asset management.

According to Bloomberg on the 21st, Franklin Templeton is preparing to allow its own tokenized money market fund (MMF) to be held as cash assets or used as collateral by ETFs and mutual funds.

The core product is the 'Franklin On-Chain U.S. Government Money Fund (FOBXX)', which is a tokenized MMF based on the BENJI platform. FOBXX invests at least 99.5% of its assets in U.S. Treasury securities, cash, and government-backed securities, and one share of the fund is represented by one BENJI token on the blockchain.

Franklin Templeton stated that this initiative could be implemented as early as the fourth quarter of this year, with the possibility of being expedited. However, for each ETF or mutual fund to actually incorporate BENJI, additional approval from the fund's board of directors is required.

SEC Opens the Door... 'Digital Native Assets' Enter Existing Funds

The U.S. Securities and Exchange Commission (SEC) has paved the way for this strategy by issuing a no-action letter in response to Franklin Templeton's request.

Franklin Templeton requested that existing ETFs and mutual funds be allowed to use the BENJI-based tokenized MMF as cash positions or collateral. In response, the SEC indicated that it would not recommend enforcement actions based on relevant custody regulations if certain conditions are met.

Sandy Kaul, head of Franklin Templeton's Digital Assets and Innovation division, explained to Bloomberg that "this is the first time the SEC has indicated that digital asset products can be used within traditional financial products."

However, this should not be interpreted as the SEC officially 'approving' the inclusion of BENJI in ETFs or amending relevant regulations. A no-action letter is closer to indicating that the SEC staff will not recommend enforcement actions based on specific factual circumstances and conditions.

Nonetheless, the significance is not small. Unlike previous efforts focused on enabling tokenization technology to facilitate trading of existing stocks, bonds, and funds on the blockchain, this opens the door for the use of tokenized financial products themselves in the routine management of existing ETFs and mutual funds.

Why Include BENJI in ETFs? "Reduce Cash and Enhance Precision of Returns"

Franklin Templeton's motivation for bringing BENJI into existing funds is to streamline cash and collateral management within the fund.

ETFs and mutual funds are required to maintain a certain level of cash to prepare for redemptions, securities lending, and derivatives margin. The issue is that if the cash ratio is excessively high, it increases the amount of funds that cannot be utilized for investment, which can burden the fund's returns.

Kaul stated, "We want the fund to experience better efficiency with MMF options," adding that "we can manage the cash liquidity that the fund needs more precisely while operating more efficiently and securing higher returns."

Utilizing blockchain-based MMFs allows for quick processing of fund movements and ownership changes, enabling funds to remain in interest-generating assets until needed and making it easier to convert to cash or collateral when necessary.

Franklin Templeton has already introduced an 'Intraday Yield' feature on the BENJI platform, which calculates returns based on the time assets are held down to the second. Even if a token is transferred to another investor during the day, the returns up to that point can be calculated for the original holder, and daily returns can be distributed, including weekends and holidays.

Ultimately, the key to including BENJI in ETFs is not that 'ETFs invest in tokens,' but rather that 'the way cash and collateral are managed internally within ETFs is transformed through blockchain.'

BENJI, Launched in 2021... From Experiment to Real Financial Asset

This strategy is an extension of Franklin Templeton's tokenization efforts that have been ongoing for five years.

The company launched FOBXX in 2021, which was the first case among registered funds in the U.S. to utilize public blockchain for transaction processing and shareholder ownership records, with one share of FOBXX represented by one BENJI token.

Since then, the functionality of BENJI has steadily expanded from being a simple 'fund share on the blockchain' to an asset that can be used in actual financial transactions.

In 2024, a P2P transfer function among BENJI holders will be added, and features will be introduced to convert USDC to dollars to purchase BENJI or to convert BENJI redemption proceeds back to USDC. In 2025, an intraday yield feature that calculates returns even for tokens held for only part of the day will be unveiled. Franklin Templeton is also providing the BENJI platform as infrastructure for other banks or asset management firms to issue their own tokenized securities.

This year, the expansion of BENJI's use cases has accelerated even further.

In February, a collaboration with Binance was initiated, allowing institutional investors to hold tokenized MMFs issued on the BENJI platform outside of exchanges while using them as collateral for Binance trades. The tokenized assets themselves remain in a regulated custody environment, while their value is recognized as collateral within the exchange.

In June, a partnership with MoonPay was established to enable institutional investors to move between stablecoins and Franklin Templeton's tokenized MMF on-chain.

Franklin Templeton completed the acquisition of digital asset-focused asset management firm '250 Digital' in June. During this process, part of the acquisition payment was also utilized in BENJI. The organization for digital asset management targeting institutions, 'Franklin Crypto,' was officially launched.

Thus, BENJI is expanding its use cases as a means for recording fund shares, transferring between investors, connecting with stablecoins, collateral for digital asset trading, corporate acquisition settlements, and managing cash and collateral within traditional ETFs and mutual funds.

Another reason the market is paying attention to this move is the scale of traditional financial products managed by Franklin Templeton.

Franklin Templeton manages over 130 ETFs globally, with total assets amounting to approximately $82 billion (about 113 trillion won). The assets under management for mutual funds reach about $790 billion (approximately 1,091 trillion won).

The total assets under management for Franklin Templeton's tokenized MMF have also increased to approximately $2.6 billion (about 30 trillion won). This is a significant increase compared to the $1.98 billion (about 27.33 trillion won) in assets under management for the BENJI product line at the end of April.

Therefore, if this measure is actually implemented, the growth momentum for BENJI will no longer rely solely on direct demand from digital asset investors or on-chain institutions. Existing ETFs and mutual funds holding BENJI for cash or collateral management could generate substantial new demand for tokenized MMFs.