Introduction
In the ever-evolving landscape of finance, traditional investment methods are giving way to innovative approaches. One such groundbreaking development is the tokenization of funds. In this article, we explore how traditional financial giants Franklin Templeton and WisdomTree have embraced this transformative technology to reshape the future of investing. Our focus will hone in on funds issued by these industry leaders, residing primarily on the Stellar blockchain and featuring short-term U.S. Treasury products.
Franklin Templeton
Franklin Templeton is a global investment management company that provides a wide range of financial products and services. They are known for managing investment funds, including mutual funds, exchange-traded funds (ETFs), and other investment vehicles.
Based on data extracted from rwa.xyz, Franklin Templeton is currently the largest protocol for on-chain U.S. Treasuries, with a market cap of $327,146,650 as of 13 Dec 2023. This market cap can be broken down into 2 segments, as their Franklin OnChain U.S. Government Money Fund, which is launched in 2021, is available on the Stellar blockchain (market cap: $325,094,165) and Polygon blockchain (market cap: 2,052,485).
Figure 1: Comparison of on-chain U.S. Treasury products by market cap, source: rwa.xyz, 13 Dec 2023
Franklin Templeton believes that “blockchain technologies have the potential to reshape the investment management industry by providing greater transparency and lower operational costs for traditional financial products” as quoted by Roger Bayston, Head of Digital Assets at Franklin Templeton.
Through the Franklin OnChain U.S. Government Money Fund, the fund transfer agent, Franklin Templeton Investor Services, maintains official records through a proprietary blockchain-integrated system that utilizes features of traditional book-entry form, and the Stellar and Polygon blockchain. Information stored on the blockchain is transparent and robust, which can be publicly accessed through blockchain explorers capable of displaying activity on the applicable blockchain networks. This information consists of transaction history, including issuance and redemption data, however, personal identifying information necessary for ownership is maintained separately and not available to the public, promoting the privacy of personal information.
One of the features of blockchain is its immutability. Therefore, should there be an input error on the blockchain record made by the fund’s transfer agent, the fund’s transfer agent will make the correction by adding an appropriate instruction to another subsequent block on the blockchain. This means that the prior record on the blockchain would not be deleted, although the blockchain would be appended with the correct transactional history, in the next block.
WisdomTree
WisdomTree Investments, Inc. is a global investment management firm that specializes in Exchange-Traded Funds (ETFs) and Exchange-Traded Products (ETPs). Founded in 2006, WisdomTree is known for its innovative approach to investing and has become a prominent player in the financial industry.
Based on Figure 1, WisdomTree has a market cap of $10,938,044 as of 13 Dec 2023, which stems from their WisdomTree Short-Term Treasury Digital Fund, available on the Stellar blockchain and Ethereum blockchain.
“We believe that blockchain-enabled finance has the potential to improve the investor experience through enhanced liquidity, transparency, and standardization,” said Will Peck, WisdomTree Head of Digital Assets.
Similar to Franklin Templeton, WisdomTree’s fund transfer agent, WisdomTree Transfers, Inc. maintains the official record of share ownership in book-entry form, as well as record the ownership of the Fund’s shares on the Stellar and Ethereum blockchains.
Requirements
In order to ensure regulatory compliance, investors engaging with these two funds are required to undergo a Know Your Customer (KYC) process on the respective platforms. Notably, both funds require investors to download their dedicated apps to access these on-chain U.S. Treasury products.
As part of the onboarding process, investors are guided to create a personalized blockchain wallet, a crucial step facilitated by the fund’s transfer agent. This ensures the establishment of a distinct and registered blockchain address tailored to each investor’s account, with restrictions preventing the holding of shares in other third-party wallets. The fund’s transfer agent securely manages the private key associated with the investor’s wallet, while the public key is disclosed to the investor, allowing them to monitor transactions through blockchain explorers. This unique blockchain address serves as a key identifier, enabling the fund to determine ownership of the shares accurately.
Investors can start investing in these funds once their whitelisted wallets have been created. The whitelisting entails a robust verification process that serves as a prerequisite, granting investors the exclusive ability to purchase, redeem, or securely hold shares within the fund.
Conclusion
In conclusion, the pursuits of Franklin Templeton and WisdomTree in introducing on-chain U.S. Treasury products mark a significant evolution in the financial landscape, especially since they are both giants in the traditional finance sector. As Franklin Templeton and WisdomTree independently harness the power of blockchain, they usher in a new era where traditional stability converges with the transformative capacities of blockchain innovation, promising investors greater transparency, efficiency, and control in the realm of on-chain U.S. Treasury products.
Similar to these financial giants, DigiFT aims to revolutionize the market by launching the DigiFT U.S. Treasury Token series (collectively known as “DUST”), the first fully regulatory-compliant U.S. Treasury token issued on a public blockchain, Ethereum. Unlike the two funds listed above, the DUST series utilizes blockchain for record-keeping purposes as well as to facilitate transactions. Each DUST series operates uniquely by representing a single U.S. Treasury note with a specific maturity. Investors have the flexibility to trade using both USD and USDC, showcasing DigiFT’s innovative edge in providing a dynamic and accessible avenue for engaging with U.S. Treasury products on the blockchain.
