"We need to combine traditional finance with crypto technology."
整理 & 编译：深潮TechFlow
Guests:
Sandy Kaul, Head of Innovation at Franklin Templeton
Host:
Camila Russo, Founder of The Defiant
Podcast Source: The Defiant - DeFi, Web3 & NFT Insights
Original Title: Every Company Will Be a Crypto Company: Expert Insights with Sandy Kaul from Franklin Templeton
Broadcast Date: June 14, 2025
Key Points Summary
What happens when traditional finance collides with decentralized finance?
Join Sandy Kaul, Head of Innovation at Franklin Templeton, as we delve into the cutting-edge experiments of this global top asset management company in the crypto space. The interview will reveal how DeFi (decentralized finance) creates new opportunities and how tokenized money market funds are shaping the future financial landscape.
This episode covers topics:
Franklin Templeton's on-chain money market fund
How evolving crypto infrastructure is reshaping traditional finance (TradFi)
New traditional financial products powered by crypto technology
Comparison between tokenization and stablecoins
DeFi-supported supply chain and enterprise resource management
Regulation, barriers, and the integration of TradFi and DeFi
Highlights
Every company will be on-chain.
Blockchain can not only optimize traditional financial processes but also enable many new functionalities that are not possible in traditional financial systems. These functionalities bring new possibilities to the asset management industry.
Each ecosystem is like an independent digital nation, with its own currency (i.e., native tokens used to purchase block space) and its own "entrepreneurs" (i.e., developers who create applications and projects on the platform).
Precise shareholder yield calculations, daily yield payments, and peer-to-peer transfer capabilities open up many new application scenarios for money market funds. These are revolutionary and not achievable in traditional financial systems.
When institutions plan to launch on-chain products, security is the most important consideration; they will also examine how transactions are recorded to ensure these mechanisms are transparent and robust enough.
First, an important feature of tokenized money market funds is that the assets they invest in are strictly regulated. Another significant advantage is that we can pass the entire yield of the fund directly to users, allowing them to achieve higher returns.
We believe liquidity pools are an important component of the future financial system and are confident in their potential. At the same time, we are very interested in lending protocols and hope to integrate our Benji product suite into these protocols as a better alternative to stablecoins.
We need to combine traditional finance with crypto technology.
Traditional financial companies often find it difficult to break out of existing frameworks and propose new models because they are constrained by regulatory thinking from the start. What we really need is imagination, the ability to rethink the potential of technology from scratch, and whether it can achieve some entirely new functionalities. This imagination comes more from crypto-native enterprises. It is this creativity, vitality, and willingness to break conventions that enable them to define these new models.
In the next 12 to 18 months, the U.S. should be able to preliminarily clarify the framework for new regulatory rules. This will provide us with a foundation to operate in a compliant environment, allowing us to expand existing use cases and bring more types of assets into the crypto ecosystem.
In the next three to four years, we will reach a critical turning point where all newly issued funds will choose to register and operate on the blockchain.
Wallet-based systems will become a significant driver of new product innovation and the popularization of crypto wallets.
We are moving towards a world with diversified payment forms. In this world, fiat currency will no longer be the only payment method but one of many options.
Cryptocurrencies are not just an asset class; they represent different countries or new investment growth opportunities. Therefore, investors should build a complete portfolio rather than betting everything on a single asset.
Success means that cryptocurrencies will become central to our business operations, not just an ancillary area. We hope that cryptocurrencies can be integrated into every aspect of Franklin Templeton's business.
When it comes to these emerging assets, investors should diversify to reduce risk.
Introducing Sandy Kaul, Head of Innovation at Franklin Templeton
Camila:
Today, we are honored to have Sandy Kaul, Head of Innovation at Franklin Templeton, with us. Sandy, I am looking forward to our conversation today because Franklin Templeton has been at the forefront of integrating traditional finance (TradFi) and decentralized finance (DeFi), and your exploration of on-chain financial activities is very impressive. I would love to know what prompted you to take this step and your outlook for the future.
But before that, I would like to learn about your personal background. What sparked your interest in this field and ultimately drove Franklin Templeton's innovation in the DeFi space?
Sandy:
My career has been quite diverse, spanning multiple fields. I started as a researcher, then moved into the commodities market as a research analyst. Over time, I developed a strong interest in how emerging technologies could change the way the financial industry operates.
In the late 1990s, during the rise of the internet, I joined a startup consulting firm focused on developing new financial models based on the internet, such as online research, online trading, and online banking. While these technologies seem commonplace now, they were highly disruptive at the time and fundamentally changed the way financial markets operated.
After that, I shifted towards consulting, helping traditional financial companies leverage emerging technologies for transformation. Around 2011 to 2012, I first encountered Bitcoin and blockchain technology. At that time, I thought it was an interesting technology but needed time to observe its development. It wasn't until 2016, with the emergence of Ethereum, that I was truly excited. Its smart contract functionality made me realize that this technology could fundamentally change the operational model of the financial industry. In traditional finance, much of the work is essentially reconciliation and handling complex paper documents. If smart contracts could automate these processes, it would significantly enhance efficiency.
Since then, I began to delve deeper into research and writing about blockchain and DeFi. Later, I led thought leadership projects at Citibank, providing advice on blockchain technology developments for large asset management companies and hedge funds. During this process, I discussed the new opportunities brought by blockchain technology with Franklin Templeton's CEO, Jenny Johnson.
Franklin Templeton is different from many traditional financial companies because it operates more like a family office. Jenny is the third-generation leader of the family, and her vision is not limited to short-term interests but focuses on the company's development over the next few decades. Therefore, she has shown great interest in blockchain technology and has driven the company's experimental work in this area. By 2021, I was very excited about their progress, so I proactively reached out to Jenny to ask if I could join the team. In 2022, I officially joined Franklin Templeton, working with the digital assets team to build blockchain-related capabilities. We firmly believe this is the future of the financial industry.
Franklin Templeton's Experiments with Crypto Technology to Reduce Costs
Camila:
The background of Franklin Templeton is indeed fascinating; it operates more like a well-established family office, which seems to provide more space for innovation. As a traditional asset management company managing over $1 trillion in assets, your active participation in on-chain financial activities is impressive. Could you please elaborate on the related projects and products you have launched?
Sandy:
Of course. We are fortunate that Jenny was responsible for the company's operations and technology work early in her career at Franklin Templeton, so she is very familiar with the company's operational model. We manage a large number of mutual funds, each of which requires daily maintenance of investment security records and shareholder records. At the same time, we also take on the role of transfer agent, maintaining detailed information about shareholders. These tasks require extensive ledger management and reconciliation processes.
Jenny proposed a bold idea: "Since blockchain is a decentralized ledger, why don't we try using it to manage funds? Perhaps we can reduce costs this way and replace traditional host systems."
So, we decided to start with money market funds and launched a tokenized money market fund. The characteristic of money market funds is that they calculate and pay yields daily, making it an ideal choice for testing blockchain technology. We hoped to validate whether blockchain technology could optimize operational costs through this project.
Since it was 2019, there were no ready-made solutions on the market, and we had to build everything from scratch. At that time, there were no wallets that could meet customer identity verification and anti-money laundering rules, no trading systems that could handle institutional orders, and no accounting systems that could perform fund accounting. Therefore, we had to build everything ourselves. This was also when we truly began to engage with crypto-native companies, because if we were to operate in the digital asset space, we had to collaborate with crypto-native companies.
Franklin Templeton's On-Chain Money Market Fund
Camila:
So far, how has your on-chain money market fund performed? Is it more efficient compared to traditional mutual funds?
Sandy:
Our first significant finding is that **operating through blockchain can indeed significantly **reduce costs. But more importantly, we quickly realized that we could use more decimal precision when managing shareholder records, which improved our accuracy. Since all transactions can achieve instant settlement on the blockchain, we no longer need to wait until the trading session ends to update shareholder records. We realized that blockchain can not only optimize traditional financial processes but also enable many new functionalities that are not possible in traditional financial systems. These functionalities bring new possibilities to the asset management industry.
Currently, we have established a fully blockchain-native platform. This platform supports functionalities that other asset management platforms cannot achieve, providing us with a unique competitive advantage in the industry.
The Evolving Crypto Infrastructure from 2019 to Today
Camila:
**I would like to delve deeper into the different functionalities you discovered and the evolution of blockchain infrastructure since you began exploring in 2019. You mentioned the lack of wallets supporting *KYC* and other missing infrastructure components. How do you view the industry's development since then? Is it easier to launch on-chain products now with improved infrastructure, or do you prefer to develop these functionalities yourself?**
Sandy:
Indeed, we have witnessed tremendous progress in this field. From the initial development of blockchain networks to the current Benji infrastructure, we have deployed on nine public blockchains and one private blockchain. This allows us to scale significantly and interact with more ecosystems. In our view, each ecosystem is like an independent digital nation, with its own currency (i.e., native tokens used to purchase block space) and its own "entrepreneurs" (i.e., developers who create applications and projects on the platform).
We hope to participate in multiple ecosystems, as these ecosystems are full of innovative vitality. We encourage developers to integrate our products and functionalities into their applications and protocols. As the ecosystems continue to evolve, we can better scale our business. Additionally, we have patented some early technologies developed in this field, which allows us to advance projects rapidly.
We have also made substantial progress in whitelisted wallets, system controls, and cross-chain mobility capabilities. Improvements in these areas enable us to better leverage the native tools being developed within the ecosystem to drive our business growth.
Key Considerations for Institutions Planning to Launch On-Chain Products
Camila:
What key points do institutions typically focus on when planning to launch on-chain products?
Sandy:
First and foremost, security is the most important consideration. We have established a comprehensive framework for assessing the degree of decentralization of blockchains. Some blockchains claim to be decentralized, but if the number of validators is insufficient, it raises questions about the robustness of their system's checks and balances. Therefore, we focus on examining the security measures these blockchains take to prevent unexpected vulnerabilities and how they enhance system reliability through continuous community testing.
Additionally, we study how they record transactions to ensure these mechanisms are sufficiently transparent and robust. We find that different blockchains perform variably in different application scenarios. If we are processing small orders for ordinary users, we typically choose blockchains with low transaction costs and fast processing speeds; however, for large institutional orders involving millions of dollars, we prefer those with high security that can retain transaction records long-term, even if it means paying higher gas fees or other costs.
To better serve our clients, we have developed a complete framework for intelligently allocating orders. This framework matches the most suitable blockchain based on the client's needs and order attributes, achieving the best balance between efficiency and security.
Choosing Blockchains Based on Use Cases
Camila:
Besides security, what other aspects should institutions pay attention to when selecting a blockchain? For example, you mentioned whitelisting and customization features; are these equally important? Or do you think there are areas that still need improvement and may have significant potential for enhancement in the future?
Sandy:
**I believe that *interoperability* is a very important consideration.** We need to connect different blockchain systems using multiple programming languages. Some programming languages offer more robust foundational features (such as primitives) and smart contract templates, making development more efficient. We are also closely monitoring the development of various blockchain ecosystems, especially how they address the shortcomings in development tools.
Currently, for EVM-compatible blockchains, cross-chain operations have become very easy because the smart contracts on these chains can be compatible with each other. However, for other types of blockchains, we will observe whether they can achieve similar compatibility and whether their transaction speeds are fast enough. If a blockchain cannot achieve horizontal scalability (i.e., supporting multiple nodes to process transactions simultaneously to improve efficiency), then how is its on-chain throughput? These are all key considerations when evaluating whether a blockchain is suitable for collaboration.
**In addition, we will also focus on specific features, such as whether it supports whitelisting, the allocation mechanism for validators (especially for *staking* networks), and how staking rewards are paid and distributed. These factors will all be included in our evaluation framework.**
Three New Traditional Financial (TradFi) Products Driven by Crypto Technology
Camila:
In your on-chain work, what functionalities have you seen unlocked? What do you think Franklin Templeton and other companies can do on-chain that was previously impossible?
Sandy:
I would like to highlight three specific examples that excite me.
**First is the real-time yield distribution of **money market funds. In traditional finance, money market fund transactions typically only occur from Monday to Friday, with fixed market opening and closing times. Only after the market closes and all transactions are reconciled can shareholder yields be calculated. If you hold a fund at a certain time of day, for example, depositing funds in the morning but withdrawing in the afternoon, you cannot earn the yield for that day. However, through blockchain technology, we can calculate shareholder records every second. This means that even if you only hold the fund for three hours and two minutes, you can accurately receive the yield for that period.
Second is the frequency of yield payments. In traditional money market funds, yields are typically accumulated and paid monthly, but through blockchain, we can pay yields daily, including on weekends and holidays. This is because we pay yields through incremental token issuance, and these tokens directly correspond to the actual assets of the fund, rather than off-chain records in traditional systems. This daily yield distribution model is more flexible and efficient than the traditional monthly payment.
Finally, the peer-to-peer transfer capability of tokens. Since tokens are directly stored in users' wallets, we can clearly know the holder and location of each token. This makes transferring tokens very simple, such as transferring directly from one wallet to another. In contrast, transferring shares of traditional mutual funds usually takes weeks and involves a lot of offline documentation and confirmation processes. This peer-to-peer transferability greatly enhances the liquidity of fund shares, making them more suitable for use as collateral.
These three functionalities—**precise shareholder yield calculation, daily yield payments, and peer-to-peer transfer capabilities—open up many new application scenarios for **money market funds. These are revolutionary and not achievable in traditional financial systems, which is why I find them very exciting.
Additional DeFi Applications: Supply Chain Management
Camila:
The third use case you mentioned reminds me of one of my favorite features in DeFi, which is the idea of "money Legos," where various financial products can be combined like building blocks to create new application scenarios. You mentioned that token holders can use these tokens as collateral; do you have broader DeFi application directions beyond that?
Sandy:
We are indeed exploring more new financing use cases, one very promising area is supply chain management. For example, if I order a batch of goods today, this batch will be shipped to a port. When the goods arrive at the port, they will be entered into the port's electronic booking system. According to traditional processes, the buyer will receive a notification of the goods' arrival and then initiate the payment process. However, from notification to actual payment completion usually takes 30 to 60 days.
**We hope to optimize this process through *smart contracts*. When the goods are entered into the electronic system, an *oracle network* can relay this information to the smart contract.** The smart contract will automatically trigger the payment instruction, using our tokenized money market fund for instant payment. Specifically, this means transferring directly from one wallet to another via blockchain technology. This method can significantly shorten the payment time from the original 30 to 60 days to just a few seconds, while greatly improving payment efficiency. This is a typical application scenario for blockchain technology in supply chain management.
Additional DeFi Applications: Enterprise Resource Management Systems
Camila:
So have you started discussions with any shipping companies for collaboration?
Sandy:
**We are still exploring how to apply *DeFi* technology to enterprise resource management systems (ERP).** For large multinational companies operating globally, their payment systems and human resources systems often involve hundreds of countries. These companies frequently need to conduct a large number of cross-border payments, and existing banking systems are inefficient and costly in handling these payments.
To address these issues, we are researching how to use **tokenized *money market funds* as a new way to settle between different legal entities within a company.** This way, companies can bypass the cumbersome cross-border payment processes of traditional banks, significantly reducing costs and improving transaction efficiency.
**We hope to leverage these blockchain infrastructures to rethink financing methods. This is not limited to innovative applications of **DeFi, but also includes how to integrate these technologies into more traditional financing models to provide companies with more flexible and efficient solutions.
Comparison of Tokenized Money Market Funds and Stablecoins
Camila:
**What advantages do your tokenized *money market funds* have compared to USDC or other stablecoins?**
Sandy:
Tokenized money market funds do have some significant advantages, but they also come with certain limitations, depending on the use case.
**First, an important feature of the tokenized *money market funds* is that the assets they invest in are subject to strict regulation.** Money market funds are required to disclose their asset details daily and store these assets in certified third-party custodians. This means that users can have complete transparency regarding the fund's underlying assets. Particularly, our U.S. government money market fund primarily invests in high-quality government bonds and short-term financial instruments, making it very secure.
Due to the high transparency and quality of the underlying assets, users typically need to provide fewer assets to complete transactions when using tokenized money market funds as collateral. In contrast, using stablecoins like USDC may require a higher collateral ratio to support the same transaction scale.
Another significant advantage is that we can pass the entire yield of the fund directly to users. In contrast, stablecoins like USDC cannot distribute all their yields to users due to regulatory restrictions; otherwise, they would be considered investment products rather than stablecoins and would need to register with the SEC (U.S. Securities and Exchange Commission) as investment tools. Our tokenized money market funds do not have this restriction, allowing users to achieve higher returns.
Of course, there are some disadvantages. **Our products comply with *KYC* and AML regulations, which means users may not have the same freedom when transferring funds as they would with USDC.** Any transfer involving our tokenized money market funds requires identity verification and KYC screening to ensure we know that the wallet is qualified to hold the fund.
Product Portfolio and Asset Classes
Camila:
I hadn't thought about it before, but since you can pass on the entire yield, your product yields are higher compared to some potentially lower-yielding stablecoins. So, do you have plans to launch other products?
Sandy:
We are currently launching a series of new products. Many people categorize these products as "real-world assets," but I don't like that term because its definition is not clear.
In fact, we all live in the real world, including those in the cryptocurrency industry. So rather than getting caught up in definitions, we focus on how to tokenize the portfolios we manage as a $16 trillion asset management company. These portfolios cover areas such as equities, fixed income, alternative investments, and cryptocurrencies.
Additionally, **we plan to tokenize some specific alternative products, such as real estate-related investment products, private debt, and the secondary market for **private equity. These are the directions we are exploring for tokenization. More importantly, we believe this will give rise to entirely new asset classes. We refer to these as "cultural assets," which include collectibles and intellectual property. We believe that as blockchain and tokenization technologies develop, these types of assets will gradually become an important component of every investor's portfolio, as these technologies greatly simplify the process of incorporating such assets into investment portfolios.
Camila:
Among the products you plan to launch, which ones will be released next?
Sandy:
We are currently launching multiple versions of tokenized money market funds to achieve global coverage. While stablecoins can circulate freely worldwide, registered investment products must operate within specific legal jurisdictions.
Currently, we have launched a money market fund based on the U.S. Investment Company Act of 1940. Additionally, we have introduced a Luxembourg version of the fund, which can operate in multiple international markets. At the same time, we also have a private version of the fund. Recently, we just received approval to launch a fund based on the Singapore BCC structure, which will allow us to enter the Singapore market. Through these efforts, we are continuously refining our product portfolio, enabling investors worldwide to easily access our money market funds.
Camila:
**Besides conducting *KYC*, do you need to be an accredited investor to purchase your **money market funds?
Sandy:
No, this is also a highlight of our choice to start tokenizing from ordinary money market funds; anyone can purchase them. You just need to download our Benji app on your phone, and after registering, we will quickly complete your KYC and AML, allowing you to start trading immediately.
You can use it as your cash management tool, obtaining all the yields provided by the money market fund without going through a broker. Everything is done directly with Franklin Templeton, and anyone can do it.
Barriers to Launching More Crypto Products
Camila:
You mentioned using these tokens as collateral for supply chain finance and their applications in business-to-business (B2B) scenarios. I imagine you have explored some areas of permissioned DeFi, such as permissioned lending and vaults, which also involve KYC-related aspects. What are your thoughts on this field? Although it is still in its early stages, is this a direction you will explore in the future, or are there still barriers preventing you from achieving this for now?
Sandy:
Absolutely correct; we are very interested in this field. Currently, we are mainly waiting for regulatory agencies to provide more clear guidance, especially regarding how to handle registered investment products in liquidity pools.
We believe liquidity pools are an important component of the future financial system and are confident in their potential. At the same time, we are also very interested in lending protocols and hope to integrate our Benji product suite into these protocols as a better alternative to stablecoins.
The reason for this planning is that we believe tokenized money market funds have clear advantages, such as higher yields, more stable underlying collateral, and their transparency and third-party custodial mechanisms, all of which can provide users with more security. We are currently also collaborating with market makers to establish market quotes for our money market funds and major crypto tokens. Once regulatory agencies issue clear approval signals, we plan to enter the market from multiple levels, as we firmly believe these innovative models will redefine the future financial ecosystem.
Areas Where We Hope for Regulatory Clarity
Camila:
What specific regulations or guidance documents do you hope to clarify how to participate in liquidity pools?
Sandy:
We are currently focusing on several key areas.
First is legislation related to stablecoins. For example, the European Mika regulations (Markets in Crypto-Assets) clearly state that stablecoins cannot be used to pay yields. However, in the U.S., there is still a lot of uncertainty regarding policy direction in this area. Therefore, we are researching how to meet KYC and AML requirements. If we participate in liquidity pools, do we need to ensure that every participant in the pool meets these requirements? Must the pool be a permissioned pool? Or can we include tokens in a permissionless pool as long as we can control KYC and AML on our business side? These are key questions we are exploring.
**Secondly, we are closely monitoring the application and acceptance of **digital identity. Many novel digital identity models are currently developing, especially technologies that directly associate identity with transactions. If identity can be directly attached to each transaction, would this eliminate the differences between permissioned and permissionless pools? These technologies may provide new solutions for future regulation.
Additionally, we are also focusing on the relevant rules for smart contracts, particularly the legal validity of smart contract terms. At the same time, we are researching bankruptcy isolation regulations. If a protocol, token, or wallet service provider encounters issues, what legal responsibilities do we, as custodians of client assets, need to bear? These are areas we are trying to clarify.
There are many things we are concerned about, and we are actively participating in various related discussions. I am the co-chair of the Commodity Futures Trading Commission's Digital Assets Working Group, and we collaborate with a large number of cross-product teams, including crypto-native enterprises and traditional financial participants. I have testified at the SEC's crypto roundtable. Through these efforts, we hope to promote the company's active participation in the regulatory field. From a traditional financial perspective, there are not many companies like us that are deeply involved in the crypto space. We hope to work closely with regulatory agencies to jointly promote the development of this field, ensuring that regulations are formulated to balance innovation and compliance needs.
DeFi and Traditional Finance
Camila:
Hearing you mention that permissionless liquidity pools and DeFi are gradually becoming part of potential legislation, and that on-chain identity may also be included in legislation, is truly surprising. Moreover, traditional financial companies are now beginning to try to integrate these technologies into their operations. I think this is remarkable. As an expert who has been deeply involved in this field for many years, what are your thoughts on this shift? This must be an incredible transformation. How do you think regulatory agencies view this? Are they taking an open stance?
Sandy:
I do have deep feelings about this. Because throughout my career, I have worked within the traditional financial system, I have come to realize that we need to combine traditional finance with crypto technology. I believe traditional financial companies often find it difficult to break out of existing frameworks to propose new models because they are constrained by regulatory thinking from the start. They struggle to imagine working without a clear regulatory framework. What we truly need is imagination, the ability to rethink the potential of technology from scratch, and whether it can achieve entirely new functionalities. This imagination often comes more from crypto-native enterprises. It is this creativity, vitality, and willingness to break conventions that enable them to define these new models.
However, crypto-native enterprises also often encounter problems that traditional finance has long solved. Over the past hundred years, traditional finance has accumulated a wealth of expertise and experience. If we want these new models to be truly sustainable, this knowledge is equally indispensable. Therefore, I believe the most exciting aspect lies in the combination of traditional finance and crypto-native enterprises. This is not just a simple overlay of the two but rather a collaboration that creates more efficient solutions.
The infrastructure of traditional capital markets has been around for about 50 years. The technological conditions at that time determined the design of these systems, but we have never truly rethought their architecture until now. This is precisely what I find most revolutionary and attractive about this era.
As for regulatory agencies, I believe they also see the potential for this innovation but are simultaneously very cautious, especially regarding setting precedents. Once new rules are established, they may have long-term implications for the entire industry. Therefore, regulatory agencies tend to take a more measured approach. I think most people can understand this, as these rules need to be stable and also inspire trust among people.
Since 2019, we have been closely collaborating with regulatory agencies. Franklin Templeton has been exploring with them, and they have been very open to learning with us, often posing some very valuable questions. These questions sometimes help us better clarify and validate our own thoughts. Therefore, this is actually a collaborative process—combining fresh perspectives and a spirit of innovation with the certainty and protection provided by regulations to jointly seek the best solutions.
Regulation Will Open New Pools of Assets and Value
Camila:
How far do you think we are from obtaining a clear regulatory framework? Will this help you engage more deeply in the industry and define relevant rules?
Sandy:
I have always been optimistic about the future. I believe that within the next 12 to 18 months, the U.S. should be able to preliminarily clarify the framework for new regulatory rules. This will provide us with a foundation to operate in a compliant environment, allowing us to expand existing use cases and bring more types of assets into the crypto ecosystem.
Let’s not forget that the total market capitalization of the entire crypto space is still only about $3.5 trillion, while in comparison, the total professionally managed assets in traditional finance exceed $100 trillion. Once a broader pool of assets is introduced into the crypto ecosystem, it will create tremendous growth opportunities for the entire industry and bring more value to all participants.
What Will the Integration of Traditional Finance and Crypto Look Like?
Camila:
What do you think the integration of traditional finance and the crypto world will look like? You mentioned that a large amount of capital will go on-chain, but currently, these two seem to be relatively independent systems. For example, there are traditional selective mutual funds and on-chain assets. Do you think that in ten years, all assets will be on-chain, or will the on-chain and off-chain worlds coexist in the long term? How will these two work together?
Sandy:
I believe that within the next three to four years, we will reach a critical turning point—where all newly issued funds will choose to register and operate on the blockchain. Of course, this does not mean that every existing fund will immediately migrate on-chain, as migrating traditional funds to the blockchain involves a lot of complex work, such as adjusting management processes, modifying regulatory rules, and changing service providers.
We have seen this in the ETF space; ETFs are very popular in the U.S. now, but in reality, the transformation of actively managed mutual funds into ETF structures has only gradually occurred over the past three to four years because this process is quite complex and challenging. Therefore, I believe that in the next five years, all newly issued funds will adopt an on-chain format.
As for the migration of existing funds, I think this will be a gradual process, likely starting with funds that have lower liquidity, as blockchain technology can bring significant operational efficiency improvements. Additionally, ETFs may also be prioritized for migration because their profit margins are already very limited, and through smart contracts and blockchain technology, operational costs can be effectively reduced. Therefore, I expect that fund migration will gradually progress from the lowest liquidity to the highest liquidity ends. I believe that within the next five years, almost all newly issued funds will choose the on-chain model.
Will the Back-End Systems of These Companies Move On-Chain?
Camila:
What about the back-end systems of investment companies? Because as you mentioned, those tasks that rely on manual bookkeeping seem to be the most suitable for moving on-chain. What are your thoughts on this issue?
Sandy:
I completely agree with your view. However, the reality is that many companies' back-end systems have been running for 20, 25, or even over 30 years. These systems are not only outdated but also have poor compatibility with each other, making it a significant technical challenge to extract data or integrate them into new processes via APIs. Therefore, system migration may take longer than people expect because we cannot bypass the technical and logical limitations of the existing financial ecosystem.
This is not just a simple migration issue; it is more like a gradual upgrade and transformation process. I believe that a priority-driven migration plan will emerge, and it is possible that traditional mutual funds will still exist 20 years from now, but they may no longer hold 98% of the market share, instead dropping to about 5%.
Consumer Demand for Crypto Products
Camila:
I feel this is somewhat similar to the development path of information and the internet. While newspapers still exist, most people have started consuming content online. So regarding consumer demand for these tokens, where do you think this demand primarily comes from? Does this demand already exist, or do we still need to attract a new wave of crypto users? After all, the current user base seems relatively niche. What are your thoughts on future development trends?
Sandy:
On this issue, I would like to explain using "account-based systems" and "wallet-based systems." Currently, the vast majority of investment activities (about 99%) are still conducted through traditional account-based systems. For example, if you have a portfolio that may include three to four different ETFs (exchange-traded funds), some mutual funds, and some stocks, these assets are stored in different accounts, making it difficult for investors to see a comprehensive view of their assets. Additionally, there is almost no interoperability between these accounts.
In a wallet-based system, the wallet itself is the actual holder of all these assets. Since these assets exist in a tokenized form, they have interoperability and composability. This means users can manage and use these assets in entirely new ways, greatly enhancing the flexibility and utility of the assets.
In a wallet-based system, the wallet is the actual holder of all these assets. Because they are in a tokenized form, they are interoperable and composable. Therefore, you can use these assets in entirely new ways.
Currently, we have already seen many positive signals emerging from the adoption of wallet-based systems. For example, emerging brokerage platforms like Robinhood are gradually shifting to provide wallet-based services. PayPal has also launched its own digital wallet system. Additionally, the EU recently introduced a digital wallet project covering all of Europe. As these wallet-based ecosystems gradually develop, more and more investors will tend to keep their assets in wallets because this method can bring more utility. This is also why we have not seen stablecoins being massively redeemed for fiat currency—people prefer to maintain stablecoin balances because they want to continue participating in the wallet-based system. Therefore, I believe that wallet-based systems will become an important driving force for new product innovation and the popularization of crypto wallets.
Camila:
Where do you think the growth momentum for wallet-based systems will come from?
Sandy:
I believe the main sources will be new channels and user groups, with more and more young investors and early adopters of crypto assets seeking these new asset utilities. You will see an increasing number of credit card companies allowing payments based on cryptocurrencies or stablecoins, which opens doors for more merchants. Then they also have wallets. The crypto ETFs we launched, as well as those launched by other companies, require a wallet to hold the crypto portion of the ETF. Therefore, we are introducing wallets into the traditional financial ecosystem, and I believe wallets will begin to penetrate, and this trend will accelerate.
Payments in Non-Legal Tender
Camila:
**Especially in light of what you mentioned, with the increasing regulatory transparency of stablecoins and banks starting to offer stablecoin services directly. Perhaps in the future, people's reliance on *fiat currency* will gradually decrease. It is even possible that one day, all transactions in our lives will be conducted in the form of cryptocurrencies or on-chain assets.**
Sandy:
I agree with your view. However, even for governments that issue fiat currency, such as the United States, I think it is unlikely that we will completely shift to a digital dollar because the U.S. already has a very mature and efficient commercial banking system. Therefore, it is more likely that some form of digital fiat currency will be issued by commercial banks.
But in some smaller countries or countries with relatively underdeveloped financial systems, central bank digital currencies (CBDCs) and digital wallets may become mainstream payment tools. I believe that these different forms of payment will achieve interoperability in the future. For example, you could use tokenized assets like tokenized money market funds or tokenized gold as payment tools. These assets may also be widely applied in other payment scenarios.
**I believe we are moving towards a world with diversified payment forms. In this world, *fiat currency* will no longer be the only means of payment but one of many options.**
Incorporating Crypto into Franklin Templeton's Investment Portfolio Model
Camila:
It is indeed an exciting time. For Franklin Templeton, we previously discussed some future focus points, such as globalization trends. At the same time, you mentioned wanting to bring more funds on-chain. So, what is the next target fund in your plans?
Sandy:
As I mentioned earlier, we are currently focusing internally on some traditional products, such as model portfolios and alternative investments. At the same time, we are also very interested in cultural assets, such as current collectibles or some important but illiquid assets, like intellectual property. Additionally, we will soon announce some exciting new partnerships. We believe that now is the best time to incorporate these assets into more investors' portfolios. Because the more diversified the portfolio, the stronger its resilience will be across different economic cycles, while also better uncovering the actual utility of assets and obtaining diversified income streams from different assets.
We are very excited about introducing new types of assets, such as those in the fields of art, music, and sports. These are typically not considered part of traditional portfolios, but we hope to include them in our products to provide investors with more choices.
Current Demand for Crypto Products
Camila:
**Speaking of *ETFs* (exchange-traded funds), you are clearly very active in this area and have launched cryptocurrency ETFs. So, what is the current market demand like? You mentioned some expectations earlier; could you elaborate on the market feedback for the different cryptocurrency products you offer?**
Sandy:
This is indeed a very interesting market. Currently, ETF buyers mainly fall into two categories: **one is institutional investors, who typically maintain good relationships with companies that have successfully raised assets early on; the other is *direct-to-consumer* ETF providers, who have also achieved good results in the market. Our partnership with the advisory network has been the main foundation of our early development.**
Earlier this year, we launched a model portfolio that allocates 1% of assets to cryptocurrencies. This allocation is similar to our allocations in stocks, fixed income, and other alternative investments. However, Franklin Templeton has taken a bolder approach in this regard, with our model portfolio allocating as much as 6% to cryptocurrencies. Additionally, we have incorporated cryptocurrencies into the portfolio benchmark, which is an innovative move in the industry.
You may know that Bitcoin has been the best-performing asset class for 8 out of the last 10 years. Simply investing in Bitcoin can allow a portfolio to outperform the market average. However, if we consider Bitcoin as part of the model benchmark, to beat the market, we need to invest in assets that perform better than Bitcoin. Therefore, we have included cryptocurrencies in the portfolio benchmark and achieved this through our multi-asset ETF. Whenever we launch a new single-asset ETF, it is automatically included in our index ETF, allowing investors to gain broader exposure to cryptocurrency investments. We believe this model portfolio will help us build asset scale in the cryptocurrency ETF space while also reflecting the unique value of cryptocurrencies as part of a diversified portfolio.
Camila:
So you prefer to adopt a passive investment strategy, rather than trying to predict which cryptocurrency or asset will be the market winner, but rather achieve investment goals through a diversified product.
Sandy:
Our philosophy is that when it comes to these emerging assets, investors should reduce risk through diversification. This way, even if a particular asset performs poorly, it won't have a significant impact on the overall portfolio. This is similar to the logic of stock investing, where investors typically do not put all their money into one stock but rather reduce risk through diversified investments.
We believe that cryptocurrencies are not just an asset class; they represent different countries or entirely new investment growth opportunities. Therefore, investors should build a complete portfolio rather than going all-in on a single asset.
How Does Franklin Templeton Define Success?
Camila:
With the SEC just approving applications for Ethereum Bitcoin and many other cryptocurrencies, I believe you are looking forward to adding more cryptocurrencies. Given your various initiatives in the crypto space and future directions, how does Franklin Templeton define success in the cryptocurrency field?
Sandy:
For us, success means that cryptocurrencies will become central to our business operations, not just an ancillary area. We want cryptocurrencies to be integrated into every aspect of Franklin Templeton's business. Our head of digital assets often jokes that looking back in the future, having a dedicated digital assets department may seem quite interesting, just like having an internet department in the past. Because now, the internet has become part of our daily business and global operations. For us, success is making digital assets, especially cryptocurrencies, the foundation of our business model. We are leveraging these technological infrastructures to build the future of the company, which is also how we serve our clients every day.
Camila:
That is indeed interesting. It reminds me of your initial experiences in the internet era. At that time, everyone was discussing internet companies, and now those have become a thing of the past. Today, every company is involved, right? In the future, every company may become a crypto company.
Sandy:
Every company will be on-chain.
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