Applicant Information
1. Name: Franklin Templeton Digital Assets
2. Key Information: We are proposing allocation to the BENJI Token, which is a share of the Franklin OnChain U.S. Government Money Fund (the “Fund”) issued and recorded on blockchain, from the Ethena Reserve Fund or from their USDT (Tether’s stablecoin) backing of USDe (Ethena’s synthetic dollar coin).
3. Expected APY: The 7-day current yield of the Fund as of June 30, 2024 was 5.16%, and 5.14% as of July 31, 2024. For more current information, including daily updates for 7-day current yield, please visit the FOBXX webpage via our website. Income received from the Fund and estimated expenses are accrued daily. Dividends from net investment income are normally declared and distributed daily; these dividends may be reinvested or paid daily to shareholders.
4. Underlying asset(s): The Fund invests 99.5% of its total assets in Government securities, including U.S. Treasury Bills, Federal Home Loan Bank, and Federal Farm Credit Bank, as well as cash and repurchase agreements collateralized fully by Government securities or cash.
5. Minimum/Maximum transaction size: The minimum investment size is $5mm. There is no maximum transaction size, however, it’s encouraged to work with the Fund’s portfolio management team for very large sizes to ensure maximum optimization.
6. Current AUM for asset: The AUM for the Franklin OnChain U.S. Government Money Fund was $401.98 million as of June 30, 2024, and $416.36 million as of July 31, 2024.
7. Volume metrics: Over the last 12 months, the Fund has processed over 1,830 transactions. This does not include daily dividend reinvestments.
Proposal Summary
Under this proposal, a portion of Ethena’s Reserve Fund would be invested in the Franklin Onchain U.S. Government Money Fund, which is the world’s first U.S. registered money market mutual fund offered and issued on blockchain in tokenized form. An investment in the BENJI Token, which represents one share of the Fund, can help diversify Ethena’s Reserve Fund into a steady, income-generating asset that seeks to provide capital preservation, and its liquidity preservation characteristics present a unique opportunity for Ethena’s Reserve Fund. Similar to the objective of stablecoins, the Fund seeks to maintain a stable $1.00 share price (NAV), which it has maintained since inception. The Fund’s 7-day current yield is 5.14% as of July 31, 2024, with a 20 basis point net expense ratio.
The Fund invests at least 99.5% of its assets in Government securities, cash and repurchase agreements collateralized fully by Government securities or cash.
The Fund invests in:
- U.S. government securities, which may include fixed, floating and variable rate securities.
- Repurchase agreements which are agreements by the Fund to buy Government securities and then to sell the securities back on an agreed upon date (generally, less than seven days) at a higher price, which reflects prevailing short-term interest rates.
Please refer to the Fund’s Prospectus and SAI for more detailed information (see the end of the proposal for links).
As the longest tenured U.S. regulated money market fund offered and issued on blockchain with the only web3 native store of ownership record, we believe the BENJI Token is uniquely positioned to be Ethena’s largest reserve allocation.
Basics and Background
1. How will this investment improve the diversification or capital efficiency of Ethena’s Reserve Fund and/or backing assets?
The BENJI Token is a digital asset security that represents a share of a regulated money market mutual fund — the Franklin OnChain U.S. Government Money Fund. An investment in the BENJI Token provides an opportunity for Ethena’s Reserve Fund to practice sound treasury management, while also generating attractive income. The BENJI Token is a competitive solution for treasury fund diversification, while also acting as an additional source of income generation through competitive yield. Any income generated by investing in the BENJI Token can provide additional capital to aid in the development of new products, technology, or other initiatives deemed important to Ethena.
The BENJI Token is designed to provide transparency by using blockchain technology to process transactions and record share ownership. The Fund’s transfer agent maintains the official record of share ownership via a proprietary blockchain-integrated system that utilizes public blockchains as the source of truth for recording transactional activity, known as the Benji platform. Ensuring the safety and stability of treasury funds is of the utmost importance and, as a result, many invest in stablecoins to try to preserve capital. Stablecoin providers invest the underlying assets across many different investment types to generate return but rarely pass that return to holders of the stablecoin. In the case of the BENJI Token, we believe that Ethena’s Reserve Fund can not only receive the benefit of capital preservation but can also earn any income generated from the Fund’s holdings through an asset that lives natively on chain.
As mentioned earlier in the Proposal Summary, the Fund invests 99.5% of its total assets in Government securities, cash and repurchase agreements collateralized fully by Government securities or cash.
While BENJI Token subscriptions and redemptions are typically done in fiat, namely USD, investors in the BENJI Token are not required to utilize a bank account. We provide access to Zero Hash on the Benji platform to provide US Dollar Coin (USDC) to USD conversions. Zero Hash conversion services allow investors to convert USDC to USD, which in turn is transferred to their Franklin Templeton account and used to seamlessly purchase BENJI Tokens. Investors in the Fund may also use Zero Hash services to convert USD proceeds from the sale of BENJI Tokens to USDC.
We would like to advocate for the Ethena Reserve Fund (or their USDT backing of USDe) to liquidate a portion of its reserves and invest in the BENJI Token. Please see Appendix 1 – Say Hello to Benji – for more information on the Fund and the process for investing.
The Fund is registered as an investment company under the Investment Company Act of 1940, and performs the transfer agent transaction and share ownership recordkeeping function via public blockchains. It’s important to note that there is no personal identifiable information publicly available on the blockchain, just transaction-level data. Because the Benji platform records transaction records and Fund ownership via a public blockchain, Ethena would have increased transparency and assurance that their assets are in good stead. Ethena can interact with their account at any time using our Benji Institutional interface and provide a look through to their holdings using their preferred block explorer.
Please see below for a preview of our institutional interface supporting the BENJI Token.
The Fund has maintained a NAV of $1.00 since inception, having provided price stability, and is also required by law to provide quarterly public disclosure of all holdings. While minor, many of the largest stablecoins have faced price volatility in the peg of their stablecoin.
Additionally, the Fund generated a 7-day current yield of 5.16% as of June 30, 2024, and 5.14% as of July 31, 2024. This yield is distributed daily directly to investors in their digital wallet, providing a yield-generating investment with a stable NAV. To see current 7-day yield figures for the Fund, updated on a daily basis, please visit the FOBXX webpage via our website.
Please refer to Appendix 1 - Say Hello to Benji for more information on the BENJI Token and process of investing.
2. Please describe any experience your firm has in working with decentralized organizational structures.
Our team has relationships with some of the largest Decentralized Autonomous Organizations (DAOs) in the digital asset ecosystem. Currently in our Digital Asset Investment portfolios, we own several governance tokens including many of the top governance tokens by market cap.
3. What is your entity’s current assets under management, assets held in trust, total value locked, or equivalent metric for your legal structuring?
As of June 30, 2024, Franklin Templeton managed total assets of US$1.6 trillion, and $1.4 trillion as of July 31, 2024. The Franklin OnChain U.S. Government Money Fund had over US$401 million under management as of June 30, 2024, and over $416 million as of July 31, 2024.
Legal Design
1. Do holders of your product have any shareholder, investor, creditor or similar rights?
The Fund is a series of Franklin Templeton Trust, which is an open-end investment company under the Investment Company Act of 1940 Act (the “1940”), which confers certain rights to all shareholders, including, among other rights, the right to: (i) vote for the board of trustees; (ii) approve the Fund’s investment management agreement; and (iii) vote on other Fund-specific matters.
2. Describe the legal and contractual structuring for your product, specifically naming any regulatory bodies overseeing the product, if applicable.
Franklin Templeton Trust is registered under the 1940 Act as an open-end management investment company, consisting of one series — the Franklin OnChain U.S. Government Money Fund. The Fund intends to be a “Government money market fund,” as such term is defined in or interpreted under Rule 2a-7 under the Investment Company Act of 1940 and is registered with the U.S. Securities and Exchange Commission. For more information, please contact our team or visit the Fund’s Prospectus (please see link to the Fund’s Prospectus at the end of the proposal).
3. How would the proposed allocation be treated in a bankruptcy or insolvency situation?
The Fund’s assets are maintained by a qualified custodian and are separate from holdings of the Franklin Templeton company, manager or adviser assets. An investment in the Fund is not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency of the U.S. government. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by, any bank. However, it is important to note that the Fund intends to be a “government money market fund” as such term is defined in or interpreted under Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). The Fund invests at least 99.5% of its total assets in Government securities, cash and repurchase agreements collateralized fully by Government securities or cash.
Smart Contract/Architecture
1. How many smart contract audits have been completed with respect to your tokenized product? Please name the auditors and provide a copy of reports.
Our smart contract code has been audited by Trail of Bits as of September 2023. A detailed report can be accessed via Appendix 2 - Trail of Bits Smart Contract Code Audit. Updates to our smart contact code were made in May 2024 and audited by Ancilia. A detailed report can be accessed via Appendix 3 – Ancilia Smart Contract Code Audit Update.
2. Is the asset/product permissioned? If so, how are you managing user identities? Any blacklisting/whitelisting features?
Yes, users of the Benji platform are run through typical KYC/AML verification and are whitelisted inside the contract (using ERC-20 roles).
3. Is the asset/product present on several chains? Are there any cross chain interactions?
The Fund currently uses the Stellar network as the primary public blockchain and Fund investors will initially hold their wallets on the Stellar network. However, the Fund may also use other blockchain networks, including Polygon, Aptos, Avalanche and Arbitrum, for certain accounts upon request and subject to eligibility, although one or more of those other blockchain networks may not be available at certain times. Please stay tuned for additional network availability.
Fund shares may be transferred in peer-to-peer transactions from one shareholder wallet to another shareholder wallet (or potential shareholder wallet) within any approved blockchain network or between any two approved blockchain networks. Shares of the Fund may be transferred using the Institutional Web Portal. A complete record of these transactions is viewable on the blockchain due to being recorded by the transfer agent’s blockchain-integrated recordkeeping system. Before transferring Fund shares, you (as the transferor) and the potential transferee must each have an active, permissioned (i.e., “whitelisted”) wallet registered with the Fund’s transfer agent on any approved blockchain network. You may use the Institutional Web Portal to authorize the transfer agent to transfer your shares to a transferee that you identify using the public key for the transferee’s wallet. There is no minimum number of shares required to process a transfer. The transfer agent is responsible for ensuring that the potential transferee in a peer-to-peer transaction has a permissioned wallet on an approved blockchain network.
- Although you may provide instructions to transfer Fund shares at any time, transfers are processed at the Fund’s next NAV calculation time after we receive your transfer request in proper form through the Institutional Web Portal.
- Notwithstanding the fact that the Fund processes peer-to-peer transfers after the next calculated NAV following the receipt of a transfer request in proper form, the Fund does not require that peer-to-peer transfers occur at NAV.
- A whitelisted investor must be aware of other whitelisted investors who are available to enter into peer-to-peer transfers and neither the Fund nor its transfer agent will play any role in connecting transferors and transferees.
- Peer-to-peer transfers do not constitute a public trading market and Fund shares will not be listed for trading on any such market, including a national securities exchange or an alternative trading system operating by a registered broker that is subject to Regulation ATS.
- To the extent investors engage in peer-to-peer transfers at a price other than NAV, such transfers may, in certain circumstances, have legal implications for those investors under the federal securities laws or otherwise.
- The transfer agent cannot ensure the reliability of any transfer of other assets negotiated in connection with peer-to-peer transfers other than transfers of Fund shares that a shareholder instructs the transfer agent to make.
- Blockchain network(s) on which a peer-to-peer transfer is recorded may impose transaction fees to validate the transaction on the network. These fees are typically paid in the native digital asset for the operation of the blockchain network and will be the responsibility of the investment manager or its affiliates; Fund investors will not be required to purchase any native digital asset to transact on the network.
You should consult your own tax advisor regarding your particular circumstances, and about any federal, state, local and foreign tax consequences in connection with the transfer of Fund shares.
4. Are the applicable tokens being used in any other protocols? Please describe the various components of the ecosystem.
The Fund currently uses the Stellar network as the primary public blockchain and Fund investors will initially hold their wallets on the Stellar network. However, the Fund may also use other blockchain networks, including Polygon, Aptos, Avalanche and Arbitrum, for certain accounts upon request and subject to eligibility, although one or more of those other blockchain networks may not be available at certain times. Please stay tuned for additional network availability.
5. How are trusted roles/admins managed in the system? Which aspects of the solution require trust from users?
During the onboarding process, Franklin Templeton obtains a list of authorized users sanctioned by the client (i.e., know-your-customer/anti-money laundering performed on all entities and entity persons). Franklin Templeton then sends out an invitation to each authorized user that will allow them to establish their username and password and set up multi-factor authentication using Okta Verify and WebAuthn (FIDO2 Compliant Devices - includes Windows Biometrics with TPM, iOS Passkeys onboarded with QR Codes, etc.).
For internal users, regular access control reviews are completed across all technical services used by the Digital Assets Technology team on a regular basis, or if there is a change in job function. There are varying levels of access based on job function and division of responsibilities as well. Access is granted based on the principle of least privilege, meaning a user is given the minimum levels of access – or permissions – needed to perform his/her job functions.
6. Is there any custom logic required for your token/product? If so please give any details.
For tracking, no custom logic is required – it’s ERC-20 compatible. Since user-managed wallet functionality is currently disabled, all operational logic (such as creating purchases and liquidations) has to go through our Institutional Website. There are additional custom functions available such as querying pending transactions.
References: Due to posting limitations, we will follow up with the following Appendix Items over email.
- Franklin OnChain U.S. Government Money Fund Prospectus
- Appendix 1 – Say Hello to Benji
- Appendix 2 – Trail of Bits Smart Contract Code Audit
- Appendix 3 – Ancilia Smart Contract Code Audit Update
- Appendix 4 – Franklin Templeton Corporate Governance Documents
- Appendix 5 – Franklin OnChain U.S. Government Money Fund SAI
- Appendix 6 – Franklin OnChain U.S. Government Money Fund Annual Report
What are the risks?
All investments involve risk, including loss of principal. The Fund’s yield may be affected by changes in interest rates and changes in credit ratings. Blockchain is subject to a rapidly-evolving regulatory landscape in the U.S. and in other countries, which might result in security, privacy or other regulatory concerns that could require changes to the way transactions in the shares are recorded. These and other risks are discussed in the Fund’s prospectus.
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should carefully consider a Fund’s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial professional, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money.
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