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Trade finance may be the most underestimated tokenization opportunity
In his 35 years at Franklin Templeton, Roger Bayston says he’s always looked to expand the opportunity set for the firm’s clients.
Now as the firm’s head of digital assets, Bayston credits that drive for his decision to start nudging the firm's now-CEO, Jennifer Johnson, to pay attention to distributed ledger technology almost 10 years ago.
"Capital markets and asset management are full of ledgers. It felt like there was going to be something inside of this that was going to be disruptive," he said on StrataMedia's Talking Tokens podcast.
That early instinct was one of the catalysts behind the firm’s launch of BENJI, its tokenized money market fund, that launched on the Stellar blockchain in 2021.
Bayston said the choice to start with a money market fund is obvious in hindsight, since it is one of the most widely held and transacted financial instruments in the world, accounting for roughly $7 trillion in the U.S. alone.
And, tokenizing the instrument unlocked two things that its legacy version doesn’t support: instant peer-to-peer transferability, and intraday yield accrual. This means if you buy BENJI shares, it’s yours, and you earn interest for exactly how long you hold them. Meanwhile, the traditional fixed income world runs on a twenty-four hour accrual clock. For institutional players moving billions of dollars of collateral daily, there’s a huge difference from seconds to hours.
"If there's the possibility that we can create better outcomes because we expand opportunity sets, then that's everything I'm supposed to be doing as a job" Bayston said.
The asset class Bayston keeps coming back to as the most underestimated tokenization opportunity is trade finance, which includes short dated loans that move capital between suppliers and buyers through the production process. The market is worth roughly $25 trillion to $30 trillion, and has historically been the exclusive domain of banks, he noted. "Banks have used these marketplaces exclusively to make lots of profits over the years," he said.
But going forward, Bayston thinks blockchain infrastructure can move that market out of the banks’ domain, and open it up to a much wider investor base.
The biggest unlock Bayston is watching for is wallet adoption. Everything in this ecosystem can scale with the proliferation of digital wallets, as the securities business has lagged crypto-native adoption partly due to regulation and partly due to the friction of the on-ramps. But as digital wallets become more embedded in everyday financial life, he expects the adoption curve to steepen considerably.
Check out the next section for more details and the full episode.
The latest Talking Tokens podcast 🎙️
For today’s episode, I interviewed Roger Bayston, Head of Digital Assets at Franklin Templeton, to discuss his 35-year journey at the firm and how tokenization became the focal point to his career there today.
Roger breaks down how he sees blockchain less as a new financial system and more as a long overdue infrastructure replacement, why BENJI’s ability to transfer and accrue interest in real time is a bigger deal than it sounds, and why investors should stop sleeping on a specific asset class with $25 to $30 trillion in activity.
This episode is sponsored by Securitize, the proven leader in tokenized funds, equities, and private markets. Discover more at securitize.io.
TIMESTAMPS:
00:00 Introduction to Tokenization and Franklin Templeton
03:02 Roger Bayston's Journey in Finance
05:45 The Vision for Tokenization in Asset Management
09:11 State of Tokenization Today
11:46 The Evolution of BENJI and Its Impact
15:01 Future Outlook for Tokenization
17:57 The Integration of Traditional Finance and Blockchain
21:05 The Future of Investment Products
21:59 Resurrecting SPVs and Trust in Finance
25:07 Building Trust in Digital Assets
28:21 Institutional Interest in Blockchain
30:46 Investing in Networks and Blockchain Opportunities
33:45 Tokenization and New Asset Classes
39:31 The Future of Banking and Tokenization
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