Franklin Templeton Retrofits Money Market Funds for the Tokenized Finance Era

Franklin Templeton is expanding its push into blockchain-enabled finance, updating two Western Asset institutional money market funds to integrate more seamlessly with the fast-growing market for tokenized financial products. 

The changes position the funds to support regulated stablecoin reserves under U.S. law and to operate across blockchain-based distribution platforms.

The asset manager announced in a press release shared with Coinpaper that the Western Asset Institutional Treasury Obligations Fund and the Western Asset Institutional Treasury Reserves Fund have been retrofitted for two major use cases: reserve management for issuers regulated under the GENIUS Act, and 24/7 blockchain-driven transfer and settlement for institutional distributors.

“The Western Asset Liquidity business has long focused on helping clients move forward without choosing between innovation and managing risk,” said Matt Jones, Franklin Templeton’s Head of Institutional Liquidity. 

“Being early only matters if you do it responsibly, and these updates prove how we can help institutions adopt tokenized infrastructure with products they already know.”

Preparing for Stablecoin Reserve Demand

The Western Asset Institutional Treasury Obligations Fund (ticker: LUIXX) now invests exclusively in U.S. Treasuries with maturities of 93 days or less, aligning it with the federal Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law in 2025. The legislation establishes strict reserve requirements for compliant stablecoin issuers, which are requirements that this fund is now designed to meet.

With regulated stablecoin adoption accelerating and total supply already exceeding $310 billion, Franklin Templeton expects demand for short-duration, high-quality collateral to surge. In its announcement, the asset management firm cited forecasts suggesting the stablecoin market could surpass $2 trillion by 2030, fueled by digital payments, real-time settlement networks, and tokenized collateral ecosystems.

A Blockchain-Enabled Share Class for Institutional Distribution

The Western Asset Institutional Treasury Reserves Fund has introduced a new Digital Institutional Share Class (DIGXX) that allows approved intermediaries to record and transfer share ownership using blockchain rails. 

Settlement subsequently becomes near-instant, transactions can occur around the clock, and integration with digital collateral systems becomes easier. All of this while the fund itself remains a traditional SEC-registered Rule 2a-7 money market fund, the announcement said.

Roger Bayston, Franklin Templeton’s Head of Digital Assets, said the goal is not to reinvent the mutual fund but to modernize how institutions access and deploy them. 

“Traditional funds are already beginning to move on-chain, so rather than question their ability, our focus is to make them more accessible and useful,” he said. 

“By prioritizing interoperability and flexibility, we’re opening more ways for clients to access and deploy regulated funds across the platforms they rely on.”

Where Tokenization Fits Into the Larger Market Debate

Franklin Templeton’s announcement arrives amid renewed debate over whether tokenized funds could meaningfully disrupt the exchange-traded fund (ETF) ecosystem. 

Bloomberg ETF analyst Eric Balchunas shared his take in an X post earlier today, arguing that while blockchain infrastructure may bring efficiency improvements, it is unlikely to derail the ETF industry anytime soon.

The analyst pointed out that the number of new ETF issuers entering the market has broken records for three years in a row, driven by a self-reinforcing cycle of inflows, innovation, and additional entrants. The rapid expansion, he suggested, shows an industry operating at full strength.

Against that backdrop, however, he argued that tokenization is unlikely to meaningfully disrupt ETFs in the near future.

“Thinking tokenization is going to waltz in and disrupt this juggernaut is crazy to me,” Balchunas wrote on X. “I’m not bearish tokens/blockchain tech but IMO it’s going to be niche area and/or boring plumbing fixes. It ain’t derailing ETFs, at least not anytime soon.”