Franklin Templeton CEO praises public blockchains

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

She spoke at the Consensus 2024 conference in Austin, Texas on May 30 and explained how the asset manager got 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.

Jenny Johnson, Franklin Templeton

“I think it’s important because, unlike many public companies, we really think generationally,” he said. “When I looked at blockchain, I said this was going to be a radical change and we better make sure we understand it.”

Initially, increased efficiency was the main attraction of using blockchain. Johnson cited the example of Franklin Templeton who had to employ hundreds of people to carry out reconciliations between its internal systems, before having to reconcile with external counterparts. Therefore, blockchain solves two problems by providing a general ledger and a source of truth.

“Once the source of truth is resolved, the times at which the truth is updated changes and this can lead to an atomic solution,” Johnson added. “If you manage to have money transactions transacted at the same time and you validate both parties, you will incur huge costs.”

He argued that the collapse of FTX would not have happened if the cryptocurrency exchange had been built on a public chain. Over time, Johnson expects regulators to recognize that they have more information about public chains, because they can see transactions and use artificial intelligence to evaluate any that seem strange.

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 would introduce new features to the first US-registered mutual fund to process transactions and record stock ownership on a public blockchain, as shareholders can complete peer-to-peer transfers.

The Franklin OnChain US Government Money Fund invests at least 99.5% of its total assets in government bonds, cash and repurchase agreements fully backed by government bonds or cash and had more than $360 million in assets as of March 31, 2024 under management. the fund is represented by a BENJI token, and the fund’s transfer agent maintains the register 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 public Ethereum blockchain, which offers qualified investors the opportunity to earn US dollar returns by subscribing via Securitize Markets.

Johnson said: “Ours is the one that runs on a public blockchain, the other one overshadows the public blockchain. We shadowed for the first six months, then the SEC felt comfortable enough to let us just run it on the public blockchain.”

Managing the fund on the Stellar blockchain allows you to pay the intraday yield via BENJI. The yield is 5.1%, and Johnson said that if holders sell a token mid-day, they earn yield for a certain number of hours and the buyer receives the rest.

“This isn’t available unless you’re on the public chain, because it’s so precise,” he added. “We see this as a way to provide traditional assets and be able to create exposures to traditional ETFs in the market that can be held in a digital wallet.”

Because Franklin Templeton wanted to operate the fund on a public chain, he had to build an on-chain shareholder recordkeeping system and a hot and cold storage portfolio. Johnson said: “Our view is that this is going to be how a lot of people get their investment exposure in the future.”

With a tokenized fund at his disposal, Franklin Templeton began purchasing blockchain loans on-chain and became a node validator. Nodes can create, send, and receive blockchain data that validates, records and transmits every transaction on the network. Franklin Templeton now operates 30 nodes across 12 different chains.

“If you don’t participate in this system and you don’t see visibility into transactions, you’re going to have a hard time providing investment advice,” Johnson said. “You are at such a disadvantage by not being a node validator.”

Franklin Templeton’s experience as a good validator has also led to it producing research on 30 tokens, which Johnson says is as rigorous as all other research produced by the company.

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

“You can’t do that today in the United States, but they have the regulatory infrastructure of the United Arab Emirates,” Johnson said.

Crypto ETFs

Franklin Templeton was one of 11 asset managers who launched a bitcoin exchange fund after the U.S. Securities and Exchange Commission approved ETFs.

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

“I think bitcoin is becoming more understood and generating more demand,” Johnson added. “It has been the fastest growing ETF for us.”

The firm has also applied to the SEC to launch an ethereum ETF and is awaiting approval to begin trading. Franklin Templeton also has a venture capital fund that invests in digital assets, and Johnson said the firm will launch a second fund.

“The most important message is that we participate in this ecosystem and see ourselves as able to help bridge the old and new tracks,” he added.

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