According to Sandy Cowl, head of innovation at Franklin Templeton, it is set up to overhaul the financial market infrastructure.
“I think our entire suite of products will be on-chain at some point in the future,” she told me. “Simply (approximately), “What is the transition path to get there?”
Financial institutions, central banks and businesses using account-based infrastructure are set up to move to wallet-based systems above the blockchain for efficiency and other benefits, Kaul argued.
Kaul argued that the approximately $240 billion Stablecoin market could increase tenfold over the next few years. But she made it clear that it’s not a player from a code that drives this growth.
“I think banks are aware that their future will be wallet-based. They will start issuing their own stables and different versions of tokenized cash to stay competitive,” she said. “That’s where the trillion dollar deposits sit, so I think it’s growing very quickly.”
She explained that Stablecoins (which, as Kaul labels, checking current account equivalents) will become “a basic part of financial infrastructure,” and that money market funds that behave like savings accounts take off in parallel.
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Franklin Templeton launched the on-chain US government money fund in 2021. As of June 30th, the assets under management were $740 million.
Cowl said that illiquid and difficult to handle assets (such as closures and personal credit) are creating operational efficiency towards the on-chain. More public equity and ETFs are also tokenized – and they are not spinning much in a more complicated way than some of the “wrapped workarounds” available now, she added.
“And moving ETF Onchain essentially eliminates the need for ETF wrappers over time,” Kaul pointed out. “Smart contracts do everything the ETF wrappers do today.”
Read for more excerpts from an interview with Kaul at Blockworks.
Blockworks: Therefore, we hope that the entire Franklin Templeton product suite will be on-chain. How long will it consist of in the future?
Cowl: I’m thinking about it within 10 years. I don’t think this is decades apart.
One of the very surprising attributes of tech innovation over the past 20 years is how quickly it has risen. When I think about the fact that Ethereum was only ten years ago, I think things happen much faster than people would expect.
Our CEO says we will see a transformation in financial market infrastructure over the next five years, rather than in the next 50 years.
Blockworks: What is it like to be in a traditional financial company that is also leaning towards disruptive technologies like blockchain?
Cowl: We are very fortunate in that we have a very supportive and enthusiastic board with the opportunities we have revealed, the infrastructure we have built, and the opportunities they will be seen before them.
Now that we have reached the maturity of the infrastructure we have built, we can issue and program our own tokens with our own transfer agent on the blockchain. It can manage shareholder records and provide new features such as intraday yield and peer-to-peer transfer.
We are talking with the Vendor Management Group and the Ministry of Finance group on how to begin experimenting with use cases with tokenized money market funds. We are looking at ways to work with the Fund Board to see if new innovations can be implemented in the way traditional mutual funds manage cash.
It may take ten years to move to these new rails, but we do one at a time, one set of products at a time, one set of use cases at a time. But I think that infrastructure we need to compete in the future is one of the first asset managers we have actually implemented it.
Blockworks: What are the biggest hurdles to overcome to ensure continuous progress in this segment?
Cowl: There was a very long and established way to know about client customers and money anti-money laundering screening. That’s such a fundamental conflict with this whole idea of an unauthorized ecosystem, and I think the final answer will sit somewhere in between.
In a traditional world where all companies have to do it and maintain itself today, it’s not the same stiffness that we have to maintain, maintain and affirm KYC and AML today. But I don’t think that would be allowed either.
“What is the right blend of protection needed to ensure that this new financial ecosystem works to protect consumers and stop bad actors?” It’s a work that doesn’t see people doing enough work and thinking.
Blockworks: You were the speaker at the May roundtable focused on tokenization. What was your takeaway from that event and the broader conversation with the SEC?
Cowl: There is a much more receptive environment for many people within the SEC who have been trying to promote responsible and effective policies for these crypto ecosystems over the years. However, they didn’t get systematically supportive to bring that great thinking and recommendations to the forefront.
What we’re most excited about is really defining regulatory pathways so that both securities and tokens can be confused. I think that’s where the distribution really opens up. There was no clarity from the regulatory authority that would allow someone to distribute ETFs or distribute mutual funds to rail blockchain sets.
