Franklin Templeton to bring tokenized assets into traditional ETFs — Details

Franklin Templeton is in the news today after it revealed plans to integrate blockchain-based assets into traditional investment funds. Up until now, tokenization mostly involved taking a conventional asset and turning it into a blockchain-based representation.

However, the SEC has now sent the asset manager a ‘no-action’ letter. This allows a conventional mutual fund or exchange-traded fund (ETF) to hold tokenized money-market funds as collateral or as part of its portfolio.

Remarking on the same, Franklin Templeton’s Sandy Kaul, Head of Digital Assets and Innovation, said,

We want our funds to experience the efficiency of having a better money market fund option: manage more precisely, capture more of the yield, better and more tightly manage how much cash liquidity they have to hold.

DeFi What does the SEC nod tell us?

However, this does not mean that the SEC has provided a blanket approval to Franklin Templeton.

According to Bloomberg, here, Franklin OnChain U.S. Government Money Fund (BENJI), which uses blockchain-based tokens to represent fund ownership, is the main offering. For those unaware, BENJI  invests in U.S. government securities and cash equivalents.

Kaul further noted that this is the first instance in which the the SEC has specifically granted this type of regulatory comfort.

But this might make sense if Franklin’s 130 ETFs with approximately $82 billion in assets worldwide, in addition to its roughly $790 billion mutual fund business, were considered.

Therefore, the current $2.6 billion value of Franklin’s tokenized money-market products is not the only factor that could have significance. In fact, the distribution channel is the main story highlight.

DeFi Impact on the current ETF market?

The impact of this partial approval is to improve capital efficiency, liquidity, and collateral management, in turn transforming the ETF market over time. Additionally, investors would also get a chance to indirectly deal with ETFs by directly connecting to the blockchain platform.

This update comes as the current ETF market has recovered from the outflow trend, but there is still concern that inflows will eventually give way to outflows. This is because Bitcoin [BTC] ETFs recorded net inflows of over $500 million in Q3, but the recovery is still limited following outflows of about $4 billion in June and withdrawals of over $380 million last week.

And yet, despite this, Jane Street increased its reported position to approximately $1.06 billion in Q2 by adding roughly $630 million in Bitcoin ETFs.

DeFi Final Summary

• This is the first time the SEC has granted permission to Franklin Templeton, though not a fully fledged one. 
• Franklin Templeton manages over 130 ETFs.