Franklin Templeton’s $300 million tokenized money market fund, the Franklin Onchain U.S. Government Money Fund (FOBXX), is primarily issued on the Stellar public blockchain. In April it expanded to Polygon, and now it says it may also issue tokens on the Avalanche and Aptos blockchains and the Arbitrum sidechain that’s linked to Ethereum.
Alongside fellow asset manager Apollo, Franklin Templeton invested in Aptos Labs. The startup was founded by part of the team from the abandoned Diem stablecoin project initiated by Facebook.
The blockchain diversification of the tokenized fund is working gradually. So far the fund has a balance on Polygon of just $2 million and based on the transaction pattern it’s possible that’s held by Franklin Templeton.
Franklin Templeton has been providing a discount related to expenses to make the tokenized fund more attractive. Without the subsidy it would charge 0.89%, but it limited the fees to 0.2% with its contribution due to expire yesterday. It has extended the subsidy for another year.
Asset managers competing with startups
One of the reasons for the ongoing subsidy might be the serious competition from startups. While Franklin Templeton is a regulated investment adviser and broker, most of the startups are not.
For example, Ondo Finance is both offshore and unregulated, but has attracted more than $162 million to its tokenized fund, which invests in a BlackRock/iShares Treasury ETF. Its fees are 0.45% and the fund yield is slightly higher than Franklin Templeton’s.
The underlying assets of the Ondo/iShares ETF are invested Treasuries, whereas around three quarters of the Frankin Templeton FOBXX portfolio is in Federal Home Loan Bank securities, which are riskier than Treasuries. That said, FOBXX invests in very short dated securities, which is less risky in times of rising interest rates.
Another startup Matrixdock has attracted more than $100 million to its tokenized Treasuries. Both Ondo and Matrixdock perform KYC and appear to restrict access to accredited investors.
Ondo and Matrixdock might offer an advantage to investors beyond the lack of regulation and risks associated with the absence of supervision. That’s because crypto investors can pay Ondo and Matrixdock with stablecoins and don’t have to move funds out of the crypto world to participate. As previously explored, access to tokenized Franklin Templeton funds is only via its BENJI app and requires conventional payments. The same applies to another mainstream asset manager WisdomTree.
One of the neat features of tokens is the return on the asset doesn’t have to be paid in a lump sum on a monthly or quarterly basis. With automation, payment can be as often as the asset manager chooses. In this case it appears that payouts happen every week day in BENJI tokens.
The BENJI app generates a private key for each investor to control the tokens, but the key is managed by Franklin Templeton’s transfer agent subsidiary.
Looking under the hood, it is the transfer agent that uses blockchain. Transactions are recorded on the public blockchain without personal information, but there’s also has a conventional database to track investor names and the like. The asset manager liaised with the SEC to get clearance to launch.