Pendle Blog

Pendle RWA Insights — Franklin Templeton

Jake and TN from Pendle spoke with Chetan Karkhanis, Senior Vice President in Franklin Templeton’s Franklin Innovation Research Strategies and Technology…

With Chetan Karkhanis, Franklin Templeton

Jake and TN from Pendle spoke with Chetan Karkhanis, Senior Vice President in Franklin Templeton’s Franklin Innovation Research Strategies and Technology (FIRST) group for Asia Pacific, on how Benji started, what it will take to scale tokenized funds, and where Asia is heading in the RWA space.

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Summary

What was the internal catalyst that convinced Franklin Templeton it was time to start tokenizing?

  • Around 2014 and 2015, CEO Jenny Johnson, who came up through technology and operations, looked at blockchain both as an investment and as financial infrastructure
  • Franklin ran its transfer agent in-house, which is unusual for an asset manager, covering subscriptions, redemptions, settlement, pricing and fund administration
  • Much of that work is record-keeping, which a decentralized ledger handles more efficiently and at far lower cost
  • Shareholder servicing can cost end investors 5 to 15 bps or more, while a transaction on Stellar costs a fraction of a cent
  • That gap led to Benji, Franklin’s tokenization platform, digital wallet and digital transfer agent, in 2015 and 2016

What is Benji, and how has it developed since inception?

  • The name came from an employee vote nine or ten years ago
  • As a platform, Benji covers the digital wallet, order management system, portal and digital ledger
  • The ledger is the single source of truth across all 11 chains Benji runs on
  • The stack is chain-agnostic and could serve third-party managers’ funds as well as Franklin’s
  • As a product line, Benji funds are money market funds issued natively onchain and registered in each country of sale
  • US Benji (FOBXX) is registered under the 1940 Act and has been available since 2021
  • Luxembourg Benji sits under the CSSF and also serves professional investors in Hong Kong
  • SG Benji launched under Project Guardian as a variable capital company
  • iBenji is an offshore vehicle in the British Virgin Islands
  • Unlike stablecoins, Benji funds are regulated securities, so Franklin must know which wallets hold them at all times

Money market funds are now well established onchain. What is the next frontier for tokenization?

  • Benji funds are natively issued rather than digital twins, so the token is the holding and ownership is never in question
  • There is no roadmap to disclose yet, but clients consistently ask for products further along the yield spectrum
  • Current Benji funds are short-duration and yield around SOFR, roughly 3.5% to 4%
  • Some Franklin ETFs are available in tokenized form through Ondo and Kraken, which handle distribution while Franklin provides the underlying securities
  • Franklin manages close to $1.8 trillion, and global AUM of well over $100 trillion could in principle move onchain, subject to NAV cutoffs and settlement times

Benji runs across multiple L1s and L2s. How is Franklin Templeton thinking about cross-chain interoperability for the platform?

  • In 2014 and 2015 nobody knew which chains would last, so Franklin supported several and followed client demand
  • Choices such as Ethereum, Canton and XRPL were driven mostly by where clients wanted to be
  • Cross-chain interoperability is the industry’s next step, whether through Chainlink, LayerZero or in-house builds
  • Large traditional institutions prefer private composability on public chains
  • Banks are building tokenized deposit networks to take part without giving up a large share of the market

TN (Pendle)

  • Pendle also runs across multiple chains, and deciding when to branch into a new ecosystem involves many of the same considerations, in a different flavor

How does an institution of Franklin Templeton’s size approach go-to-market in crypto and DeFi?

  • A year or two ago the focus was launches, and now it is scaling the products already live
  • The simplest use case is yield for Web3 treasuries, digital platforms and traditional clients
  • On the US and Luxembourg funds, yield accrues intraday, down to the second, until the token is redeemed into fiat
  • Peer-to-peer transfers work like Venmo or Zelle without losing any yield along the way
  • As collateral, Benji earns interest intraday and moves in and out of USDC, a real advantage for hedge funds, HFTs and market makers
  • Liquidity and money market solutions total about $13 trillion, and capturing 1% would be $130 billion against roughly $15 billion tokenized today

How were the ETFs selected for the Ondo and Kraken partnerships?

  • Selection was largely driven by what Ondo and Kraken wanted to offer, with the aim of variety and allocation choice
  • Franklin runs around $80 billion across hundreds of ETFs and sees tokenized ETFs as the next wave

In DeFi, a tokenized asset isn’t meant to sit passively in a vault. It’s meant to be used as collateral, looped or yield-optimized. Do you envision a regulatory-compliant framework where an asset like grBENJI could be deposited into DeFi protocols like Pendle to maximize capital efficiency, or will institutions always require a hard firewall between tokenized wrappers and permissionless pools?

  • It depends on how the product is offered to end clients
  • For qualified purchasers and accredited investors, packaging assets as private notes or structured products already happens in TradFi, and he sees no difference in DeFi
  • A vault is a more efficient way to build a structured product than the traditional operating model, and could lower the cost of entry for exposure that today comes only through SMAs or funds of funds
  • Retail access is where regulators will look most closely, and they will want standardized risk presentation
  • Ratings from independent auditors or rating agencies, along with a look-through process that makes risk clear to end investors, could help vaults and looping products grow beyond the institutions able to assess the risk themselves
  • The space deserves more attention and standardization, and while it could cut both ways, he sees it as a step in the right direction

TN (Pendle)

  • As a protocol operator on the DeFi side, Pendle has built use cases that worked well on crypto-native assets
  • The team is now applying the same infrastructure and mechanisms to assets coming onchain, from high-yield corporate bonds to native assets like Benji, to serve a slightly different use case
  • Whether that takes the form of vaults is still to be seen, but one of the bigger things Pendle can enable is DeFi utility that isn’t feasible outside crypto
  • On Robinhood Chain, tokenized equities paired creatively against newer tokens drew attention, liquidity grew, and builders became more motivated to build on that liquidity layer
  • Tokenized funds and bonds may need a similar trajectory, finding a use case onchain through vaults or other structures, attracting new liquidity and compounding from there

Which Asia-Pacific jurisdictions are moving fast enough to capture the lion’s share of the RWA market?

  • Singapore and Hong Kong have the clearest regulation, and Hong Kong leads on tokenized gold and commodities
  • Korea is active, but the Digital Asset Basic Act is still pending and clarity may not come until mid next year
  • Japan’s FSA is working toward 1 January 2028 for crypto ETFs and tokenized securities
  • Japan and Korea are his focus markets for 2027 and 2028, with Australia still exploratory
  • China and India will take longer given capital flight concerns
  • Thailand, Vietnam and Indonesia show strong retail interest, and tokenized ETFs and stocks matter most where US securities and dollars are hard to access

TN (Pendle)

  • RWA is still small but definitely growing, and while it will take time, its growth is quite inevitable

Franklin Templeton works with platforms such as HashKey and DigiFT. How do you evaluate Web3 distribution partners?

  • The same way as any distribution partner, starting with the strength and experience of management
  • Platform size, presence across Asia and brand reputation also count
  • Onboarding stays TradFi, with full compliance, KYC and AML checks
  • All partners are licensed, holding a CMS license in Singapore or Type 1, 4 and sometimes 9 licenses in Hong Kong
  • Traditional partners include DBS and SBI, alongside Web3 platforms in Singapore and Hong Kong, with Japan and Korea next
  • Partnerships with Binance, Bybit and OKX cover collateral and earn programs
  • Exchanges now operate “almost like a bank”, as Web3 and TradFi converge from both directions

Analyst forecasts put tokenized RWAs at anywhere from $4 trillion to $16 trillion by 2030. If you had to identify a single catalyst that takes the industry from today’s billions to those multitrillion-dollar targets, what would it be?

  • Pinning down that catalyst is part of his job, and he sees several working together rather than one
  • Last year everyone was busy launching, and at least 15, probably closer to 30, tokenized money market funds launched in the past year alone, so the field is now crowded
  • Uptake has to accelerate sharply, given tokenized products are “cheaper, better, faster”
  • Adoption by exchanges, corporate treasuries and large traditional institutions could be the trigger
  • Education matters, and regulators and the market are starting to recognize the benefits
  • Liquidity solutions top out at about $13 trillion, so the trillions also need tokenized commodities, equities and bonds
  • Several countries are already using tokenized bond issuance as a test case