Tokenization: The Future of Finance Arrives Early

A prescient 2017 paper correctly predicted that tokenization would eventually replace traditional equities and bonds. This transformation is now occurring at an accelerated pace, exceeding initial expectations. Franklin Templeton launched its tokenized money market fund in April 2021, leveraging blockchain technology to introduce novel capabilities.

These capabilities include intraday yield calculations and daily yield payouts for money market funds. This product allows investors to earn interest up until the exact moment of cash-out, a distinct advantage over current industry practices. As collateral increasingly moves onto these new blockchain-based systems, this superior product is well-positioned to benefit.

The complete replacement of existing collateral, repo, and financing systems through tokenization is anticipated within the next three years. For general portfolio exposure, the adoption of tokenized funds is expected to follow a trend similar to Exchange Traded Funds (ETFs). While ETFs took two decades to surpass mutual funds, tokenized funds could achieve this in approximately ten years.