Franklin Templeton Pioneers Stellar Blockchain for Mutual Funds

By  Noah Washington October 2, 2023

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  • Franklin Templeton pioneers first U.S. mutual fund on Stellar blockchain for enhanced transparency and efficiency
  • Blockchain integration facilitates faster cross-border transactions and settlements at lower costs for investors
  • Adoption of Stellar and its native token XLM signals readiness of asset managers to embrace crypto and decentralized finance

Franklin Templeton, an investment management firm, has ventured into the realm of blockchain technology. Their latest innovation, the Franklin OnChain U.S. Government Money Fund, has become the first U.S.-registered mutual fund to leverage the Stellar blockchain network.

This move has far-reaching implications for cross-border payments, asset transfers and the future of fund management.

Stellar Blockchain Network

The Stellar blockchain network, often referred to as Stellar Lumens or simply Stellar, is a decentralized, open-source blockchain protocol that facilitates fast, secure, low-cost cross-border transactions and asset transfers.

Launched in 2014 by Jed McCaleb, one of the co-founders of Ripple, Stellar was designed with the vision of making financial services more accessible to all, especially those in underserved regions of the world.

The price of Stellar's XLM cryptocurrency the past year. Source: CoinGecko

Stellar is a blockchain-based payment network that stands out from the competition for several reasons. It is decentralized, meaning that no single entity has control over the network. This makes it more secure and trustworthy. Stellar's consensus algorithm also allows for quick transaction confirmations, typically taking only a few seconds.

Additionally, transaction fees on the network are very low, making it a cost-effective option for users. Stellar is primarily focused on enabling cross-border payments, making it an ideal choice for organizations looking to reduce the time and cost associated with international money transfers.

Significance of the First U.S.-Registered Mutual Fund on Stellar

The decision to register the Franklin OnChain U.S. Government Money Fund on the Stellar blockchain is nothing short of historic. It marks a pivotal moment in the evolution of the financial industry, showcasing the industry's readiness to embrace blockchain's transformative potential.

The fund's adoption of the Stellar blockchain opens new avenues for investors. It provides a secure and transparent platform for tracking transactions and recording share ownership, all while benefiting from the inherent advantages of blockchain technology, such as immutability and decentralization.

Stellar's blockchain technology provides several benefits for mutual funds. The transparency of transactions on the blockchain allows for real-time auditing, building greater trust and accountability with investors.

Stellar's fast transaction confirmation speeds up settlement so investors can access their funds quicker. The low transaction fees on Stellar's network reduce costs for both fund managers and investors. By leveraging Stellar's blockchain, mutual funds can operate more efficiently while offering investors greater transparency, speed and cost savings.

Utilization of Stellar Lumens (XLM) for Transaction Fees

A notable aspect of this initiative is the use of Lumens (XLM), Stellar's native cryptocurrency, to cover transaction fees associated with the mutual fund. This demonstrates the fund's commitment to efficiency and cost-effectiveness through utilizing cryptocurrency technology.

By using XLM rather than traditional currency for these transaction fees, the fund aims to provide investors with significant savings compared to typical mutual fund transaction costs. The use of a cryptocurrency like Lumens for this purpose highlights the continuing adoption of digital assets and blockchain technology in the financial sector.

Daily XLM transactions fees (10,000,000 stroops = 1 XLM). Source: The Block

While still an emerging area, cryptocurrencies offer mutual funds potential benefits related to speed, cost and accessibility of transactions on a global scale. The fund's use of Lumens represents an innovative approach to leveraging the strengths of cryptocurrencies to improve the investor experience. By covering fees with XLM, the fund furthers cryptocurrency integration into mainstream finance while providing a practical example of how digital assets can transform traditional investing.

Momentum Builds Toward Crypto Integration and Regulation

The launch of Franklin Templeton's new fund utilizing Stellar's blockchain technology represents an exciting innovation in the finance industry. It demonstrates how major financial institutions are finding ways to integrate cryptocurrency into traditional finance.

Globally, governments and banks are also taking steps to incorporate crypto into existing systems. For example, India is considering allowing crypto tokens to digitally sign documents through a new web browser, potentially enabling secure transactions. Meanwhile in Japan, Nomura, the country's largest investment bank, has introduced a regulated Bitcoin fund to provide institutional investors exposure to crypto assets.

As leading economies like these explore cryptocurrency regulation and adoption, momentum seems to be building toward establishing legal frameworks that facilitate mainstream crypto usage while managing risks. Though specific approaches differ across countries, the expanding acceptance of crypto indicates growing acknowledgement of its potential benefits.

Making Milestones

Franklin Templeton's foray into the world of blockchain technology through the Franklin OnChain U.S. Government Money Fund is a remarkable milestone. This pioneering effort not only underscores the transformative potential of blockchain but also sets a precedent for the financial industry at large.

As blockchain technology continues to mature and gain widespread acceptance, it's possible to anticipate further developments in blockchain-based mutual funds and investment vehicles. The future promises increased efficiency, transparency,\ and accessibility for investors worldwide, thanks to innovative initiatives like the Franklin OnChain U.S. Government Money Fund on the Stellar blockchain. This groundbreaking journey has only just begun, and the possibilities are boundless.