Sandy Kaul: Bitcoin, Stablecoins, Tokenization—the Advisor Playbook

This podcast is brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.

What if the next revolution in wealth management is already here, but you just haven't recognized it yet? Hi everyone, I'm business coach Steve Sandusky for Barron's Advisor, The Way Forward Podcast. My guest today is Sandy Call. Sandy is the Executive Vice President, Head of Innovation at Franklin Templeton, where she leads the firm's digital asset and blockchain initiatives. Franklin Templeton has pretty much gone all in in this area by embracing the potential of blockchain, crypto assets, stablecoins, and tokenization as core parts of the future financial infrastructure. In today's conversation, Sandy shares her insights on the dramatic pivot in regulatory attitudes toward digital assets. She explains the transformative business case behind blockchain technology and discusses how financial advisors can responsibly incorporate digital assets and tokenized investments into your client portfolios. She also addresses common skepticism about digital assets. She outlines practical use cases for Bitcoin and major public blockchains, and she explores the opportunities that wallet-based ecosystems and stablecoins offer for reshaping wealth management. With that, here's my conversation with Sandy Call. Let's start by zooming out. The Biden administration was not a fan of crypto and digital assets, whereas the Trump administration is exactly the opposite. We've recently had some new legislation. The Genius Act was passed. And yet, despite the administration's interest in it, many, and I dare say most financial advisors are still pretty skeptical. When it comes to crypto and digital assets and tokenization. You're just the opposite. Franklin Templeton, I think, is just the opposite. You've really gone, I think, all in in this area. So I'd love for you to like frame where we are in the current environment and how do you think financial advisors should be thinking about digital right now?

Yeah, there has certainly been a pretty dramatic pivot between the Biden administration and the Trump administration. And it can be a little dizzying when you look at how fast the attitude attitudes towards where crypto and digital assets might fit in our future financial ecosystem, how fast the attitudes about this have changed. But I think to really put this in perspective, we need to take a step back and understand how profoundly important these new technologies are, right? It's easy to get caught up in the speculative nature of crypto investing and not understand that these are really true technology innovations. In fact, if these were offerings being made by companies instead of by protocols, we would be talking about the crypto craze, just like we're talking about the AI craze in terms of investment in technologies that are going to transform the future. And that's really what crypto is. If you think about it, we are talking about ledgers that are now going to be shared and used by pretty much every company on Earth over the coming decades. Right? Just like the cloud completely transformed the way that companies manage their data, blockchain and the underlying technologies that are being run by these big public blockchains are going to transform the way that people keep their records. And so I think the most important thing for advisors to start with in trying to understand the pivot that we've seen is that there are truly technology changes that underlie this whole new ecosystem and giving access to those new technologies is part of what growth strategies are all about. So I think that's a great place to start, Steve.

Yeah, I've been following crypto and digital and Bitcoin for many years now. I've done a lot of podcasts on the topic over the years. So I'm just going to get my bias out there, which is I agree with you 100% that I think there's tremendous opportunity here. Yet when I talk to advisors, so often one of the first responses is, It's a scam. It's just used by people who are laundering money. And they say, where's the use case? And they say, hey, it's not like a company where a company has cash flows, it has profits, it can grow over time. There's, you know, hundreds of years of history behind that. And so why do I even need crypto or Bitcoin or any type of digitization here? So they always say, like, what's the use case? So how would you respond to someone who has that kind of thinking toward digital assets right now?

I think it's a perfectly fair question, right? And we should always have a use case before we make any investment to really understand where it fits in our portfolio. So I would say like, let's take it as two different conversations for a moment, because I think that the use case for Bitcoin and the use case for the broader crypto ecosystem, particularly these big blockchains like Ethereum and Solana and Avalanche, right? A different use case, I think, for these big blockchains that is somewhat easier, I think, for many advisors to understand. And that is today, when companies keep their records, every company has their own ledger, right? And in financial services, we understand the problems that this causes all the time. If I have my own ledger of trades and you have your own ledger of trades, every time you and I do a transaction with each other, Steve, I have to make sure that everything on my ledger exactly matches the records on your ledger. And sometimes the slightest differences could cause a trade to fail. If you have a middle initial in my name on your record, and I don't have the middle initial on my name on my record, that trade could fail. And that could create financial difficulties, financial exposures. So the biggest change and the biggest use case for these big public blockchains is that they create a shared record that every participant that needs to see that transaction record is able to see that transaction record in real time, trust the transaction record because it can be basically tracked all the way back to every trade that has ever occurred in that ledger. And it is highly secure because it's being distributed, that ledger is being distributed across thousands of participants simultaneously. So to alter the ledger, is almost an astronomically difficult feat because you would have to change the records for every one of those thousands of participants at the same time and make it not noticeable. So these are highly secure ledgers that can be shared, that take away the need for reconciling transaction records. And if you think about all the industries where reconciling transaction records takes up so much time and effort and ties up so much capital in terms of protecting, I mean, buying insurance, this is a huge innovation and use case that's going to really drive, I think, tremendous value in the future. And we at Franklin Templeton truly believe that these big public blockchains like Ethereum and Solana and Avalanche, etc., that they are going to become the bookkeeping records for the entire globe. And we can buy in and own part of those bookkeeping records today, right? So I think that's the use case for the big platforms. And I think there's a slightly different use case for Bitcoin. And Bitcoin, it did have some of the concerns that advisors still harbor early in its development. But those problems have been primarily cleaned up at this point. There is a lot of transactional forensics that happen on the Bitcoin blockchain that are making it very clear when there are illicit wallets trying to do transactions. There is a tremendous ability of international regulators to to shut down illegal wallets, to shut down sources of illicit financing. And the use case for Bitcoin is pretty compelling when you look at all of the fragmentation and geopolitical concern that has emerged in the world in recent years. People like the idea of there being a currency that no government can control, that has a store of value that can be easily transported. And in this case, I think the closest use case that people come back to again and again is think of Bitcoin more like digital gold. It's limited in its supply. It is highly transportable. It's highly fractionable. And any investor anywhere in the world can access it. And it has exactly the same value anywhere in the world. And that's a pretty appealing set of characteristics given a lot of the uncertainty that we're dealing with in the world today.

Let's talk about Bitcoin here for a minute since you brought that up.. And oftentimes when I talk to advisors about Bitcoin, another area that they go to is they say it has no intrinsic value. And the only value that can be ascribed to it is that someone else is going to be willing to pay a higher price for it. So it's sort of that greater fool theory idea. And oftentimes they'll point back to Warren Buffett, who we all know is not a fan of Bitcoin or digital assets. So again, how do you respond to someone who says there's no intrinsic value, there's no cash flow, then they compare it to a corporation that has cash flow, that has, you know, real assets and, you know, generates profits over time?

So all due respect to Warren Buffett, who is an amazing investor, but, you know, I think he's not potentially up on the latest in terms of how technology is changing our overall ecosystem and how services and how goods are being transferred and delivered. Right. And I think that this is what you need to really focus on when you think about Bitcoin. People say Bitcoin is based on nothing, but that's simply not true. The Bitcoin ledger, which began back in 2009, has conducted trillions of transactions right now. And that transaction network is fully tested, right? It has been deployed for almost over 15 years. And the amount of activity that it is generating in terms of people being able to purchase this Bitcoin and prove their ownership of it and be able to prove where it is stored in their wallet and how much of it they have, it's very much like having gold in a vault. Your Bitcoin in your digital wallet, your cryptographically protected wallet, is an easily verifiable asset. And the Bitcoin network is able to provide the transaction history that gives people confidence that the Bitcoin you hold are legitimate Bitcoin. And therefore, if I want to be able to exchange that Bitcoin, I have that tangible proof of ownership. And this is a very important concept because it is very hard to prove ownership of a digital asset without this underlying blockchain that Bitcoin not only developed and introduced, but has been evolving and has been creating more functionality around in recent years, including an ability to build applications on top of this network. I think that people are underemphasizing the importance of how secure and how transparent the Bitcoin network is and how therefore that is providing this new type of global asset that people are going to be willing to exchange. If you think about it, gold has no value other than people thinking it's beautiful and trying to formulate it into jewelry, which is a use that people came up with for gold. But nonetheless, gold is just a rock that sits it's in the ground. It's only worth what people are willing to pay for it. The US dollar is not backed by anything right now. It's backed by the pledge of the US government. And people still invest in it because they believe that pledge. So to say that Bitcoin is based on nothing is kind of ignoring how many assets in today's world are based on their perceived value. And I think Bitcoin actually does have some interesting characteristics that sit underneath it that make it more reliable than many of the assets that we do regularly put money into today?

Well, if we go back and we look at the original Bitcoin white paper that Satoshi Nakamoto came out with, it appeared that it was designed more as a peer-to-peer payment type network that perhaps it might replace Visa and MasterCard, for example. And there were obviously some early examples of trying to use it as a transaction system. But today, I think most people would, would say that's probably not going to be the best use case for it, that it's really become more of, like you say, digital gold. And it has basically all the properties of gold, but does it 10 times better because it's in digital form and not physical form. So would you agree with that, in that Bitcoin today is really more of an investment asset, store of value, something that's designed to help you protect your assets against inflation vis-à-vis, say, the US dollar, which can easily be inflated? Would you say that that's sort of the main use case that advisors should think about when it comes to Bitcoin today?

Yeah, 100%. I think that's exactly correct. And I think it is this idea that it is a digital commodity, right? People don't have trouble getting their mind around the idea that commodities have value. Bitcoin is a digital commodity. And just like gold or other commodities, it has value because people are able to use it. It can be used as a means of exchange. It can be used as a store of value, right? It's not necessarily a payment or a currency. And that's where I think the term cryptocurrencies often misleads people. Think of it more as a digital commodity, as you said, like digital gold.

There's someone that you and I both know, Rick Edelman. And Rick recently came out with a paper suggesting that we could be looking at a Bitcoin allocation of, I think, between like 10% to perhaps 40%. And of course, that raised a lot of alarm in the financial advisor community, thinking that was probably too aggressive. So how do you, how does Franklin Templeton think about where Bitcoin might fit within an advisor's portfolio allocation?

Yeah, that's a fantastic question, Steve. And we have been thinking very deeply about this at Franklin Templeton, because as you said, we really believe in the underlying growth potential of these new technologies. And we want to make sure that we provide responsible exposure to that in our client portfolios. And what we've done is we've taken a little bit of a differentiated approach. A lot of people want to put Bitcoin into portfolios because Bitcoin been the best performing asset in 8 of the last 11 years. And everyone is always looking for return. But just because something is providing a good return on investment does not mean that it is necessarily a great asset for the portfolio. So what we have tried to do is say, well, if Bitcoin is an asset class, if this is a new type of digital commodity and this digital commodity is going to be a new piece of the portfolio, just like we could allocate to commodities as part of the existing portfolio, we need to incorporate it into the benchmark. It's not enough to just have a side allocation. It has to be part of how we actually measure the portfolio's return. And therefore, we have begun to incorporate Bitcoin into our portfolio benchmark on a new set of funds that we've put out, a new set of model portfolios. And therefore, we are evaluating how each asset class in the portfolio contributes and is expected to perform relative to that benchmark. And by incorporating Bitcoin into the benchmark, we are now giving advisors, I think, the necessary ammunition to be able to explain to their clients how this is now part of a modern portfolio's allocation. We have equities, we have bonds, we have allocations to these new technologies that are based on networks. Because in essence, what you are buying with Bitcoin is you are buying into a new network. And that network has value. And so we've incorporated into the benchmark, which has allowed us to have in our most aggressive portfolio, an allocation of around 6%, which we think is a good allocation for a commodity-type profile.

And at Franklin Templeton, in your portfolios, how do you actually own Bitcoin? Do you own it directly? Do you own an ETF that owns Bitcoin?

How do you handle Yeah, so we have an ETF at Franklin Templeton called EZBC. That is our Bitcoin ETF. We also have an ETF that we call EZPZ, which is a combination of Bitcoin and Ethereum, which is the largest ledger in the crypto space right now. And we are offering exposure in our portfolios via these ETF structures. For more sophisticated institutional investors, we do offer an option to have this as a separately managed account. Account in which we will trade the actual underlying Bitcoin or the underlying coins. But for retail investors and for wealth clients, we feel that we are still at the stage in the industry where it's better to take exposure via an ETF as we wait for wallet-based ecosystems to penetrate more deeply into the existing wealth networks. Most wealth networks today do not have or offer their clients a protected wallet, and you really need that wallet to be able to hold the actual Bitcoin. And we just feel that the options available right now in terms of wallets are not yet institutional enough for us to feel comfortable recommending them. So we do continue to recommend the ETF in our model portfolios right now.

Okay. Well, I could talk about Bitcoin all day long and probably bore people with it. So let's move over to stablecoins. For many people, stablecoins is now becoming like, okay, this seems like a possible use case for these ledgers. So let's just start at the basics here. How do you define what a stablecoin is?

I look at a stablecoin as a new form of digital cash. If you think about the way our ecosystem works today, I have a ton of different accounts, right? I have a checking account, I have a savings account, I have a brokerage account, I have a retirement account, I have an insurance account. I have many different accounts, and it is incumbent upon me, the individual, to really manage all of those different accounts. And if I want an aggregated view of my holdings across all my accounts, it's incumbent upon me to put that view together. In a wallet-based ecosystem, my cryptographically protected wallet becomes the container for all of my assets. I can put my digital cash into that wallet. I can put my savings into that wallet. I can put my investments into that wallet. I can put the contracts that govern my insurance into that wallet, and it gives me a much more effective and superior tool to manage my financial life. We are never going to be able to really shift from today's account-based system to a wallet-based system unless we have a form of cash that allows us to easily make purchases out of that wallet. And that is what a stablecoin provides. A stablecoin is an on and off ramp between the fiat economy, the US dollars that sit in my bank account, and the crypto economy or the Web3 economy that is being built on all of these new blockchains, right? And so it's a form of cash. It's something I can also transfer internationally simply from wallet to wallet without all of the frictions and without all of the fees that I'm charged by other organizations, which is why we're seeing seeing the use cases for stablecoins and interest in having wallets go up by many traditional organizations, particularly big corporate treasuries. And so stablecoins are a critical bridge product because they are opening up this wallet-based ecosystem that sits on top of blockchain and making it usable. And that is, I think, the first step of us moving off of today's kind of 50-year-old financial market infrastructure to a brand new market infrastructure that will be built on these blockchains using wallets, stablecoins are going to be the first product that allows us to make that transition.

Relating this to Bitcoin, I think one of the big frictions with Bitcoin in the early days was you did have to use a wallet, you know, like in the pre-Coinbase days, for example, it was difficult to transact in Bitcoin because you did have to have this wallet system. It was complicated. And I think one of the big concerns that folks have even today, and you touched on this just a moment ago, which is the wallet-based system today is still fairly complicated. I think the rules are still evolving around it. There's obviously concern that if you're using a wallet and you happen to send your money to the wrong person, it's like there's, correct me if I'm wrong, but I don't think there's any way to get that money back. If the person on the receiving end doesn't want to send it back versus the account-based system today, whether it's like Visa, MasterCard, brokerage firms or what have you, there's all kinds of different guardrails in there. So tell me a little bit more about shifting from an account-based system to a wallet-based system. And from a practical standpoint, when might that happen and what additional guardrails or safeguards need to be put in place to make sure that using a wallet-based system is not going to result in a degradation of the safety measures, let's call it, that are sort of in place with the current account-based system.

And that is the key right there. You know, we needed rules and regulations to enable us to start really building those consumer protections into a wallet-based system. And that is finally what we're starting to see emerge in the U.S. is that regulatory framework and certainty that is allowing us to now begin to really think about the optimal ways of operating in a wallet-based economy. So just as an example, we at Franklin Templeton, Steve, have built our own token issuance and management platform, and we have built our own KYC AML compliant wallet solution. And we enable wallet holders to make peer-to-peer transfers between any wallet set up in our system upon their own choosing. And we can do that because we have demonstrated to the SEC that we have control over the tokens that sit in our wallets at all times. So to your earlier use case, if somebody were to send a, a trade in error to the wrong wallet, we are able to call back that token or cancel the token if the wallet holder doesn't want to release it that it was transferred to and reissue it. And this is why stablecoins are such an important important new instrument because it is going to allow banks, it's going to allow wealth management platforms, it's going to allow more asset managers like Franklin Templeton. In other words, the trusted players in the system. It's going to allow all of us to begin to issue wallet-based infrastructures. And unlike some of these early entrants, you know, crypto exchanges or these digital natives. These are trusted institutions that advisors have worked with for years. And knowing that they are building and we are building these protections into these wallet-based offerings, I think is going to be the linchpin, what gets everyone comfortable that we can adopt and safely adopt these new technologies. So that is in part why stablecoins are so important is that it is giving now banks and other trusted institutions a pathway into being able to now launch and safely operate their wallet-based systems?

There's one US dollar, yet when we look at stablecoins, there's a variety of stablecoins. There's USDC, there's Tether, there's Circle. You know, Trump has his own stablecoin as well. So we've got multiple stablecoins out there. We've also got multiple wallet systems out there. There. And some people might argue that this might be similar to back in the 1800s when we had wildcat banking and banks were issuing their own forms of currency. How do you reconcile the idea that we have multiple versions of stablecoins, we have multiple companies that are going to come out with their own wallet systems, like you just mentioned here with Franklin Templeton? Are all of these going to talk to each other? How would an advisor go about doing due diligence in vetting these different systems?

So first off, these cryptographically protected wallets absolutely all talk to each other. And that is one of the beauties of having these wallets basically built to operate in an internet-based networked economy, right? Is that they are interoperable and you can use cryptographically protected keys to open and close these wallets very safely. Safely. Every wallet has a public key, which is the address of that wallet. And then every wallet owner has a private key, and that private key can be custodied with third parties to make that safer, to keep that private key secure. So it's going to operate in a way that is not going to feel odd to people. I think that the analogy I like to use is it's who is issuing the stablecoin and how much do you trust them. First, we needed rules that required people who run stablecoins to be transparent about how they are investing their underlying stablecoin. And that is one of the accomplishments of the Genius Act. But now what we need is people to use their consumer discernment. If the stablecoin is being issued by a company I've never heard of that might be a brand new IPO company and it may seem hot and very exciting. Do I want to trust that entity over my bank or over my wealth advisor who will soon likely also be offering me a wallet? People are going to default to trusted institutions and look for the trusted institutions to provide those wallets. And unlike the analogy that people are drawing back when multiple banks issued their own I would instead liken the system to if I trusted my bank and you had a bank that I also trusted and you gave me a check drawn on that bank, I wouldn't have trouble accepting that check because I trust both institutions. And that is how I think the stablecoin space is going to evolve. People are going to gravitate towards the stablecoins that are being issued by the institutions they trust. Trust, because those trusted institutions will have clear regulatory mandates on how they have to manage the stablecoin pool, and they will have clear mandates on how they need to report as an issuer and behave as an issuer of the stablecoin. So I don't think you're going to have multiple versions of the US dollar. You're going to have different institutions offering their own stablecoins, and it's going to be up to the consumer how much they trust that institution. And consumer demand, I think, will naturally gravitate towards more trusted names in this space.

The possibilities with stablecoins, I think, are really intriguing to think about. So let me sketch a scenario here and tell me if you think this is fair or not. So with a stablecoin, they basically have to be backed with a very secure asset. And I think in most cases, it's probably going to be like US Treasury, very short-term US Treasury securities. So it basically has a, a one-to-one connection to the US dollar, and hopefully there's going to be no de-pegging of the stablecoin. So is it possible that companies like Amazon or Walmart and, you know, different organizations that sell products, that they come out with their own stablecoins? And if you transact in Amazon's stablecoin, then you would get discounts on anything that you purchase through Amazon. And my understanding is that the way these stablecoins work, that if you're the issuer of the stablecoin, that you cannot pay interest on that stablecoin. And instead, when you take money in from someone and then you issue them the stablecoin in return for the money that they gave you, that the issuer of the stablecoin gets to invest it in the U.S. Treasury securities, and then they retain the interest. Interest that comes from the Treasury securities. And that's how the issuer of the stablecoin actually makes money, because they get to keep the interest. And I think the Genius Act says that the issuer cannot pay interest on the stablecoin, but there are ways to give, like, a discount. Again, the Amazon case— you use the Amazon stablecoin, and we're going to give you a 2% discount on anything that you purchase through Amazon, or 4% discount, or whatever the case may be. So am I thinking about this Yes, you are.

But let me build the picture a little more fully because I think that it can sound a little more alarming sometimes than I think it deserves. First off, you must register and you must have the proper license to issue a stablecoin. This is very much similar to a banking license. It is not something that is easy to obtain. All of the digital natives that are applying for these licenses are encountering pretty stiff resistance. Resistance because you need to prove that you have a very robust system of controls in place to get those types of approvals. So I think that you're going to see more, as I said before, more trusted players issuing stablecoins. And then you need to ask who is the underlying issuer of the stablecoin? Someone like an Amazon may have a stablecoin that they offer to you, but the question is, Is Amazon actually the issuer of that stablecoin? Are they the one who is administering the underlying pool for that stablecoin, the reserve pool? And are they the one who is managing how the benefits are being administered? And I think that those two things are going to be separate functions. I think when you talk about companies like Amazon or Walmart having stablecoins, they are going to white label a bank's stablecoin or a trusted player's stablecoin, and they will want to white label it because you can embed a smart contract in a stablecoin that can offer certain benefits. So my Amazon stablecoin might give me the discounts that you're talking about, but that will be the smart contract that is embedded in the stablecoin. And the issuer of that stablecoin might be, you know, a traditional bank that you have a lot of trust invest in. So I think that's one important piece to keep in mind is just because someone offers a stablecoin doesn't mean that they are actually the issuer of that stablecoin and that they are running the reserve pool. I think the second point about not being able to pay interest on a stablecoin is very important because we don't want cash paying interest. We want cash to be highly transportable and highly fungible. We want investments, securities to pay interest. And this is why even today, if you have a high yield savings account, or if you have a, a high paying account that you're using for cash management, those are often backed by money market funds because those are registered securities and they have to operate under securities law, not banking law. And so there are tokenized money market funds. Franklin Templeton has our tokenized money market fund, the Benji product where we have almost $1 billion in assets right now. And that money market fund pays interest. And so just like we see in the traditional banking system, Steve, where I have cash in my checking account and I have money in my savings account that pays me interest, in a wallet-based system, we want stablecoins to act and remain like cash, but we want to have an ability to sweep those stablecoins into tokenized money market funds so that customers can get the benefit of the yield. This transfer becomes super easy in a wallet-based system. I can actually keep my money in the tokenized money market fund up until the second I want to transact. We can move immediately from a tokenized money market fund into a stablecoin to pay for that transaction. And then therefore you collected yield up until the last possible second on your money. And this is something we do already at Franklin Templeton. We're able to pay yield based on the amount of seconds of the day that you actually hold our tokenized money market fund, which is just not possible to do in a traditional money market fund. So there's a lot of benefits to this system, but you want a stablecoin to act and look like cash, and you want to have your investment products that provide yield regulated by a much more stringent technology code. In terms of what we have to be able to adhere to.

And I want to talk about that tokenized money market fund here in just a moment, but I want to go back to the Amazon example for just a second. So let's say Amazon white labels JP Morgan's stablecoin, for example. How does Amazon make money on white labeling that coin such that they would be able to say offer a discount on Amazon purchases if you use the white label white-label Amazon stablecoin? Where does their income come in from white-labeling the stablecoin?

So this is where the stablecoin issuer who is running the reserve pool and who is collecting that yield on the pool will likely do a revenue share to incentivize Amazon to use their stablecoin. And part of the yield that is coming from the reserve pool would be flowed back through to Amazon to help cover their costs of running the discount program. And the banks want to be able to do this because they want to be able to continue to view that underlying pool of assets as a source where they can begin to make loans and they can begin to use and provide those funds to their clients. Because think about it, if stablecoins are replacing the money I hold in my deposit accounts, the banks are going to need an alternate source of deposits to be able to be really offering the lending and the credit that we need in the system. And so it's just an evolution in functionality. It used to be I had money sitting in a deposit account that the bank used to make loans and I got yield on some of those deposit accounts. And now I'm going to have the bank issuing a stablecoin and managing the reserve pool from which they will bake some portion of that reserve pool fee fee eligible to the issuers that use their stablecoin and white label it. And some part of those fees will be kept to help fund the bank and fund their ability to make loans and to continue to provide credit to the system. So it's an evolution in the business model and a shift in approach, but it still operates very similar to how the system operates today. It's just in a new wallet-based ecosystem.

Today, short-term Treasury securities, I think, are yielding, you know, in the neighborhood of 4%, let's say. If President Trump gets his way in the next 12 to 18 months, it might be closer to 1% or 2%. And so the income or interest that the issuers are going to receive by investing in the short-term Treasury securities is going to go down pretty dramatically. So again, using this Amazon example, if Amazon was a 2% discount because JPMorgan was sharing 2% of the 4% interest that they're getting. And now interest rates drop down to 1% or 2%, you know, that margin is gone. So how do we think about what happens to interest rates and how that's going to affect the revenue generated from the issuer of the stablecoin and then their ability to do a rev share with other folks that are white labeling it? Are we, you know, running into the same concerns that we always have when interest rates go up and down over time?

Time? Yeah, there will definitely be some aspect of that that we will contend with. And interest rates, as we know, will go up and will go down. But the beauty of the new token-based structures such as stablecoins and tokenized money market funds is that the smart contract that you embed in them can do multiple things. So Amazon might not be able to offer as much of a discount, but they might be able to offer other incentives, right? They might be able to offer loyalty loyalty points. They might be able to offer early access to new products. They might be able to offer, you know, unique experiences that can be fostered and supported by Amazon, just like they're supporting the production of movie studios now, right? So it doesn't have to only be a financial incentive that the company can deliver via their stablecoin. It can be a whole variety of potential benefits for the consumer, and some of those will not be tied to the interest rate cycle. And that gives that stablecoin a little bit more resilience and appeal as a product over the long run.

So let's talk about the tokenized money market fund that you brought up here just a moment ago. So let's say I own that. Roughly, what's the, the interest that I would get today by owning the Franklin Templeton tokenized money market fund?

Just over 4%, I think, as you had noted.

Yeah. Okay. So I'm getting, let's call it 4%. And I have taken what I would traditionally just have as cash. And now I put it in this tokenized money market fund. I'm getting 4% interest and I'm using a wallet-based system. Are we going to get to a point where I can treat my tokenized money market fund as if it's just cash, as if it's just like Venmo with interest? Interest. And if I want to pay for my dinner out at a nice restaurant, or if I want to buy something at Walmart, I can just pay with my tokenized money market fund. And I can, as you said, I can continue to get interest on that until the very second that I send the money out of my wallet. Is that what we're looking at here?

Yeah, 100%, Steve. And in fact, with our tokenized money market fund here in the US, we allow people to buy in with as little as $20. We offer our own wallet for this product that you can download off the App Store, and you can already transfer that peer-to-peer with any other user who gets set up in the system. So if you and I were both set up in the system and I wanted to pay for my share of dinner with you using my tokenized money market fund, I can do that day. And what's also exciting is because we are administering this fund ourselves as a transfer agent in the wallet, we are able to create the shareholder record second by second. And therefore I can pay out the interest every single day to you, including Saturdays, Sundays, and holidays on our money market fund. Whereas traditional money market funds, you only get paid out your interest once a month. So there's already improvements and enhancements that we're seeing that are going to make tokenized money market funds, another form of potential payments. And it won't stop there. I mean, we will be able to use things like tokenized gold. We will be able to use things like tokenized oil, right? Really any commodity, any asset that has a clear value that can be tracked and you can have transparency into the wallet holdings. We're going to see more and more forms of money-like instruments that people can to use. And in fact, we at Franklin Templeton kind of see this future as one in which we are going almost back to a high-tech barter society where I can use forms of fiat currency, I can use stablecoins, I can use central bank digital currencies from other countries, and I can use all sorts of cash-like instruments for payments and for reimbursements. So I think it's going to be a very exciting future in terms of where we're added.

Well, I hope I live long enough to see all this come to fruition because it's all extremely exciting to me as well. And, and I think I read recently that you said what we're talking about here today is not an evolution, but it's actually a revolution. And we know that with revolutions there's disruption. And so I think the banks are probably on the front lines of this in terms of how they could be affected. Visa and Mastercard probably on the front lines here as well. So, let's put our investor hat on here. Who do you think are going to be the winners in this new type of digital economy? And who do you think are going to be the losers? And what do you think are the best ways that financial advisors, if they're listening to this and they're saying, "Oh my gosh, this is pretty amazing. I want to get in on it," what are the best ways for them to actually invest on behalf of their clients so that their clients can benefit from it as well?

So the way that I look at this is this is going to be an ecosystem that is going to require trust. And so there are a lot of new entrants that have come out with exciting business models that have really kind of changed the dialogue and they've gotten a lot of early interest. But I think that the real winners in the space are going to be the brand names that people already trust. And what I look out for is in each category, who are the firms that are out front and really talking about their embrace of these new technologies, talking about how they are deploying new types of products and wallet-based products products for their clients, right? So in the asset management sector, this is why we at Franklin Templeton are so proud of the work we're doing. But then in each sector, I would look at that. Who are the other asset managers who are out front talking about how they're adopting and embracing new technologies and innovating? Who are the banks who are out front talking about how they are willing to potentially cannibalize some of their existing revenue streams to be shifting and preparing for this new future? Who are the credit card companies that are out front really talking about how they are incorporating these new options into their business model? I would be looking for trusted players who are at the forefront of embracing innovation and really looking at how they can deploy new product that offers superior functionality. And I think those are going to be the real investment winners in this space.

I think there's a lot of irony in this because I hear you talking about the importance of trust. Yet if we go back to Bitcoin where we started the conversation here, one of the core principles of Bitcoin was that they wanted to create a permissionless, trustless-based system where there was no intermediary third party that you had to trust in order to help smooth the whole transaction system. And so it was really based on this idea that I don't have to trust a third party, 'cause I'm just going peer-to-peer. And did you find any irony in that? Or do you just think, hey, you know, these are just two separate things. Bitcoin is that trustless, permissionless system, whereas what we're talking about here with the tokenization and the stablecoins, that still does have these trusted intermediaries in there but in a digital form that is much better than the current account-based system, and it's really moving to the wallet-based system. Do you find some irony in there at all?

I think that the digital natives have more problems with this than people who are coming at this from a fresher mindset. And the way I like to look at it, Steve, is that the technology is delivering a new sort of trustware, right? Like, just like we had software, To me, when I look at Bitcoin and the Bitcoin network, to me, the Bitcoin network is a system of trustware. That network allows me to trust that the ledger is accurate without an intermediary guaranteeing each transaction because of the nature of how the network operates. And I think that this is the permissionless and the trustless part of the new technologies is that we are going to trust the technology and that that technology is ensuring that the system is operating effectively without an intermediary actually taking the steps to make it happen. But we are still gonna trust the brand of the entities that are putting their name to that trustless system, right? So the trust has shifted from the operations of the intermediary to the sponsorship of the intermediary. And, and that's how I look at it. I do think that we've seen this already with cloud technologies, right? I'm sure you recall that many financial firms initially said they would never put their data in the cloud, that how could they trust data in a cloud, that they needed data in their proprietary mainframe systems to know that they had control over it. That feels like a very old-fashioned view now. Almost every single financial firm in the world is operating operating with cloud-based technologies today. And I think that that is going to be the same trajectory we see with these new blockchain-based systems, that we are going to learn to trust the technology, the decentralized technology, and that trust that they are providing accurate records and accurate transactions. But the sponsors who are providing the products on top of that technology, we still want to trust those issuers. And I think that their role is really moving from intermediary to issuer.

Yeah, you make a good point there about how what we think about something in the early days oftentimes morphs dramatically in the later days. And I remember back in, gosh, I think it was 1994, I was working for a broker-dealer. You know, we were just starting to talk about the internet. And one of my colleagues said, yeah, I think eventually we're going to like be trading stocks on this thing. And I'm I'm like, what are you smoking? There's no way that's going to happen. And of course, I was totally wrong and he was, he was totally correct. Or even putting our credit card online. I mean, you know, back in the '90s, it's like, who's going to put their credit card online? You know, that sort of thing. So yeah, things definitely change over time. Okay, so obviously I'm super excited about all these things that are happening here, and I think advisors over time are going to get more excited about it. But if an advisor is listening listening to this, what would you say is the first step or two if they want to start getting knowledgeable about this, if they want to start understanding how they might incorporate this into their practice over time? What are the first one or two steps that they should be taking right now?

So I think that the first step is read a little bit and start to understand these underlying technologies. I think a lot of people do not appreciate how much money some of these protocols are making and how their business model succeeding so quickly. For example, Ethereum, which is the largest public blockchain, if they were a company and you looked at their pathway to achieving $10 billion in revenues, there are only two companies that got to $10 billion in revenues faster than Ethereum. And that was Google and Facebook. Google and Facebook were pretty good investments if you got in early on into those investments. And there is a similar opportunity in front of people today with these new blockchains. So I think that the first place I would start is get over this idea that they are offered by foundations and that they are protocols and start looking at the actual economics of these platforms. And you'll see that these treasuries of these blockchains have amassed billions of dollars of funding through the fees that they're charging. Charging, that they are running very robust business models that are growing very quickly, and that it represents this whole new opportunity where we started about owning what could potentially become the bookkeeping system for the entire world, right? And so I think that I would go back to square one, suspend your disbelief, and look at the actual economics and the fundamentals that sit under these potential investments. Investments and get away from the fearmongering mindset and start to look at them as a way of owning a network. Just like a stock is a way of owning a company, a crypto is a way of owning a network. And we have seen how powerful networks are. And today, our only options is to own that network indirectly through the stock of the company that owns the network. And in the future, these cryptos give us a direct way of owning the network. And that to me is where I would start as an advisor is, if I can understand that and make that argument, I think that becomes very appealing for me to recommend these types of investments to my clients.

Well, Sandy, as we wrap up here, is there any final thought, comment, or observation you want to share?

I would just encourage everyone not to resist change, right? You and I have talked about it. I remember as well, Steve, being terrified and absolutely rejecting the idea that I would ever put my credit card information over the internet. And gosh, I don't think there's anything I purchased right now that I'm not purchasing over the internet. So change happens. I think that there has been, you know, there were some bobbles early on in trying to establish this new system. But I think that, you know, don't judge the crypto ecosystem of 2025 on the crypto ecosystem of 2012's measures. Realize how much institutionalization of this space has occurred. Understand that the regulatory environment is coming into clarity now that is going to allow for these investments to become more commonly offered and, and make the effort to really understand that there is a tremendous growth business case and opportunity that sits under these potential investments. Great.

Well, I appreciate that, Sandy. And if folks want to either stay in touch with you or follow you? I know you put a lot of education material out there on these topics. What's the best way for them to follow you?

I am very active these days on LinkedIn with the help of my social media staff. I'm a little old for my own social media presence, but they are helping me. And I think a lot of the thinking that we are doing is there and it's available on our ft.com site, franklintempleton.com. Where we publish our research on these disruptive technologies and our thinking about where the future of investment and wealth management are headed.

All right, that's all for today. Make sure you like and share this podcast through your favorite social platforms. And for more great podcasts, visit us at barons.com/podcast. Take care and be safe.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.