BlackRock & Franklin Templeton Tokenized Funds — What Their Moves Mean for RWAs

When Franklin Templeton pioneered tokenized money market funds on public blockchains, it opened the door for institutional adoption. When BlackRock, the world's largest asset manager, subsequently launched its own tokenized fund, it confirmed that tokenization had moved from experimental technology to institutional strategy.

The entry of these financial giants into blockchain-based asset tokenization marks a watershed moment for Real-World Assets (RWAs). Their participation signals not just technological validation but a fundamental shift in how traditional financial products are structured, distributed, and traded. These moves carry implications that extend far beyond the funds themselves—they're reshaping market infrastructure, redefining custody models, and accelerating mainstream adoption of tokenized assets.

This article examines how BlackRock and Franklin Templeton's tokenized fund strategies are transforming the RWA landscape, what their approaches mean for distribution and custody, and why their involvement matters for the broader adoption of blockchain in traditional finance.

Landscape

The Institutional Awakening

The tokenized fund landscape transformed dramatically when BlackRock and Franklin Templeton entered the space. These aren't fintech startups experimenting with blockchain—they're established financial powerhouses managing trillions in traditional assets. Their participation represents a calculated strategic move into what they view as the future of asset management infrastructure.

BlackRock's tokenized money market fund represents the firm's first major foray into public blockchain infrastructure. The fund allows qualified investors to purchase tokens that represent shares in a traditional money market fund, combining the stability and regulatory compliance of traditional finance with blockchain's operational efficiencies.

BlackRock's BUIDL (BlackRock USD Institutional Digital Liquidity Fund) was launched on the Ethereum blockchain and is offered on multiple blockchains, including Aptos, Arbitrum, Avalanche, Ethereum, Optimism, Polygon, and Solana.

Franklin Templeton's approach has been notably progressive, with the firm launching multiple blockchain-based funds. Their strategy extends beyond simple tokenization to explore how blockchain can fundamentally reshape fund operations, from automated compliance to real-time settlement.

Their flagship Franklin OnChain U.S. Government Money Fund (FOBXX) was a pioneer in the space, launching first on Stellar and later expanding to chains including Stellar, Polygon, Avalanche, Arbitrum.

Market Context and Timing

The timing of these institutional moves is not coincidental. Several factors have converged to make tokenized funds attractive to major asset managers:

• Regulatory Clarity: Increasing regulatory frameworks specifically addressing tokenized securities have reduced legal uncertainty
• Infrastructure Maturity: Enterprise-grade blockchain platforms now offer the security and scalability required for institutional use
• Client Demand: Institutional clients increasingly seek exposure to blockchain efficiencies without sacrificing regulatory compliance
• Competitive Pressure: As more firms explore tokenization, early movers gain strategic advantages in market positioning

The current tokenized securities market represents a multi-billion-dollar tokenized treasuries and money-market segment in 2025, with estimates varying by methodology, and is projected to grow exponentially as more institutions follow these pioneers.

Why tokenized funds matter

The significance of BlackRock and Franklin Templeton's tokenized funds extends far beyond the products themselves. Their participation validates blockchain technology at the highest levels of traditional finance and accelerates the broader adoption of tokenized assets.

Legitimization Through Brand Authority

When firms managing trillions in assets embrace blockchain technology, it sends a powerful signal to the market. These institutions have spent decades building reputations for prudent risk management and fiduciary responsibility. Their willingness to deploy client capital through blockchain infrastructure effectively endorses the technology's maturity and security.

This legitimization effect cascades through the financial ecosystem. Smaller asset managers gain confidence to explore tokenization, knowing that industry leaders have validated the approach. Regulators become more comfortable with tokenized products, having seen responsible implementation by established firms. Most importantly, institutional investors who might have been skeptical of blockchain technology now see it as a legitimate infrastructure choice backed by trusted names.

Blueprint for Industry Standards

BlackRock and Franklin Templeton's implementations serve as de facto templates for the industry. Their approaches to compliance, custody, investor protection, and operational processes become reference models that other firms can adopt or adapt. This standardization effect is crucial for market development, as it reduces the friction and uncertainty that typically accompany new technology adoption.

The specific choices these firms make—from blockchain platform selection to custody arrangements to compliance frameworks—influence how the entire industry evolves. Their scale and influence mean that technology providers, service providers, and regulators all adjust to accommodate their requirements, creating a more mature ecosystem for all participants.

Bridging Traditional and Digital Finance

Perhaps most significantly, these tokenized funds serve as a bridge between traditional finance and the emerging digital asset ecosystem. They allow investors to gain exposure to blockchain efficiencies without abandoning familiar investment structures or regulatory protections. This bridging function is essential for mainstream adoption, as it provides a gradual path for institutions to integrate blockchain technology into their operations.

The funds also demonstrate that tokenization doesn't require a complete departure from existing financial infrastructure. Instead, it can enhance and complement traditional systems, preserving what works while adding new capabilities. This evolutionary rather than revolutionary approach makes adoption more palatable for conservative institutions.

Distribution & custody implications

The distribution and custody models employed by BlackRock and Franklin Templeton for their tokenized funds represent fundamental shifts in how financial products reach investors and how digital assets are secured. These changes have far-reaching implications for market structure and investor access.

The tokenization flow follows a clear path: traditional fiat currency enters the fund through established channels, the fund issues corresponding tokens on a blockchain platform, and these tokens can then be traded or redeemed according to the fund's terms. This process maintains regulatory compliance at each step while introducing blockchain efficiencies.

Revolutionizing Distribution Channels

Traditional fund distribution relies on complex networks of intermediaries—broker-dealers, financial advisors, platform providers—each adding costs and delays. Tokenized funds potentially streamline this distribution architecture, though the extent of disruption depends on regulatory requirements and market adoption.

In the tokenized model, funds can be distributed directly through blockchain infrastructure, reducing reliance on traditional intermediaries. Qualified investors might purchase fund tokens directly from the issuer or through simplified digital platforms. This direct distribution model reduces costs, accelerates settlement, and provides greater transparency into ownership and transactions.

However, the reality is more nuanced. Regulatory requirements for investor verification, suitability assessment, and ongoing compliance mean that some intermediary functions remain necessary. The innovation lies in how these functions are performed—often through automated smart contracts and digital identity systems rather than manual processes.

Evolving Custody Models

Custody for tokenized funds presents unique challenges and opportunities. Unlike traditional securities held in centralized depositories, tokenized fund shares exist as digital tokens on blockchain networks. This requires new approaches to securing and managing these assets.

BlackRock and Franklin Templeton have adopted what might be called a "hybrid custody model." The underlying assets of the fund—the securities, cash, and other investments—remain in traditional custody with established financial institutions. Meanwhile, the tokens representing fund shares require digital asset custody solutions, involving cryptographic key management and blockchain-specific security measures.

This dual-custody approach ensures that both layers of the investment structure meet regulatory requirements and security standards. Qualified custodians manage the traditional assets according to established practices, while specialized digital asset custodians or technology providers secure the blockchain layer.

Implications for Market Access

The distribution and custody innovations enabled by tokenization have profound implications for market access. Geographic barriers that traditionally limited fund distribution can be reduced, subject to regulatory compliance. Investors in approved jurisdictions might access funds that were previously unavailable due to distribution constraints.

Additionally, the potential for fractional ownership and lower minimum investments could democratize access to institutional-quality investment products. While regulatory requirements still impose some limitations, the technical infrastructure of tokenized funds supports more inclusive investment models.

Effects on RWA liquidity/pricing

The tokenization of funds by major asset managers like BlackRock and Franklin Templeton has significant implications for liquidity and pricing dynamics in the broader RWA market. These effects extend beyond the specific funds to influence how all tokenized assets are valued and traded.

Enhanced Liquidity Mechanisms

Traditional fund shares often suffer from limited liquidity, with redemptions processed at specific intervals and settlement taking days. Tokenized funds transform this dynamic through several mechanisms:

First, the potential for secondary market trading means investors aren't limited to redemptions through the fund itself. Tokens can potentially be traded peer-to-peer or through digital asset exchanges, creating continuous liquidity opportunities. While regulatory restrictions may limit some trading, the technical infrastructure supports 24/7 transactions.

Second, faster settlement times—potentially moving from T+2 or T+3 to near-instantaneous settlement—reduce counterparty risk and free up capital more quickly. This efficiency improvement makes the funds more attractive to investors who value liquidity and operational efficiency.

Third, the programmable nature of tokens enables innovative liquidity solutions. Smart contracts could facilitate automated market-making, collateralized lending against fund tokens, or integration with decentralized finance protocols, all subject to regulatory approval.

Price Discovery and Market Efficiency

The tokenization of major funds by respected institutions contributes to more efficient price discovery for RWAs broadly. As these funds trade on blockchain infrastructure, they generate transparent, real-time pricing data that helps establish benchmarks for similar tokenized assets.

This improved price discovery benefits the entire RWA ecosystem. When BlackRock's tokenized money market fund trades at a certain premium or discount to net asset value, it provides market signals about demand for tokenized assets, risk perceptions, and liquidity preferences. Other tokenized products can reference these pricing dynamics when establishing their own valuations.

Moreover, the participation of sophisticated institutional investors in these funds brings professional price discovery mechanisms to the tokenized asset space. Their trading activities, based on fundamental analysis and risk assessment, help establish more accurate and stable pricing for tokenized assets.

Network Effects and Market Depth

As more institutions launch tokenized funds, network effects begin to emerge. A deeper, more liquid market for tokenized assets attracts more participants, which in turn enhances liquidity further. This virtuous cycle is accelerated when flagship firms like BlackRock and Franklin Templeton participate, as their involvement attracts other institutional players.

The increased market depth also reduces price volatility and improves market stability. With more participants and greater trading volume, individual transactions have less price impact, making the market more resilient and attractive to risk-averse institutional investors.

These liquidity and pricing improvements extend to related markets. As tokenized funds become more liquid and efficiently priced, they can serve as collateral for other transactions, integrate with traditional financial products, and enable new financial innovations. The result is a more interconnected and efficient financial ecosystem.

Risks & open questions

While the tokenization initiatives by BlackRock and Franklin Templeton represent significant progress, important risks and unresolved questions remain. Understanding these challenges is crucial for investors and market participants evaluating tokenized fund opportunities.

Regulatory Uncertainty and Evolution

Despite increasing regulatory clarity, significant uncertainties persist. Different jurisdictions take varying approaches to tokenized securities, creating complexity for global fund distribution. Key regulatory questions include:

• Cross-border distribution rights: How will tokenized funds navigate different regulatory regimes when tokens can technically move across borders instantly?
• Secondary market regulations: What rules will govern peer-to-peer trading of tokenized fund shares?
• Tax treatment: How will various jurisdictions tax tokenized fund investments, particularly when tokens move between countries?
• Investor protection standards: How will traditional investor protections translate to the tokenized environment?

These regulatory uncertainties could limit the full potential of tokenized funds until clearer frameworks emerge across major jurisdictions.

Technical and Operational Risks

The technology underlying tokenized funds, while mature, still presents risks that must be carefully managed:

Smart Contract Vulnerabilities: Even audited smart contracts can contain bugs or unexpected behaviors that could affect fund operations or investor assets. The immutable nature of blockchain means errors can be difficult to correct once deployed.

Blockchain Platform Risk: The choice of blockchain platform introduces dependencies on that network's security, scalability, and continued operation. Network congestion, fee spikes, or technical failures could impact fund operations.

Key Management Complexity: The cryptographic keys that control tokenized assets must be securely managed. Loss or compromise of keys could result in permanent loss of assets, a risk not present in traditional fund structures.

Interoperability Challenges: As different funds may use different blockchain platforms, ensuring smooth interaction between tokenized products could prove challenging as the industry develops common standards.

Market Structure Questions

Several fundamental questions about market structure remain unresolved:

Will tokenized funds ultimately trade on traditional exchanges, cryptocurrency exchanges, or new hybrid venues? The answer will significantly impact liquidity and accessibility. How will traditional market makers and authorized participants adapt to the tokenized fund ecosystem? Their participation is crucial for efficient markets.

Can tokenized funds achieve the same scale and efficiency as traditional funds, or will the additional technical complexity limit their growth? What happens during market stress or technical failures—are there adequate backup systems and procedures?

Competitive Dynamics and Innovation

The entry of major asset managers into tokenization raises questions about competitive dynamics. Will their dominance in traditional markets translate to the tokenized space, or will new entrants leverage blockchain's democratizing potential to challenge incumbents?

There's also the question of innovation pace. While BlackRock and Franklin Templeton bring credibility and scale, smaller, more agile firms might drive faster innovation in tokenized products. The balance between stability and innovation will shape how the market evolves.

Evaluation Framework for Tokenized Funds

When evaluating tokenized fund offerings from major institutions, investors should consider several key criteria:

This evaluation framework helps investors make informed decisions by focusing on fundamental characteristics rather than specific product details that may change over time.

The evolution of institutional tokenized funds has accelerated rapidly in recent years. Early experiments by smaller firms paved the way for major institutions to enter the space. The progression from pilot programs to full-scale launches demonstrates growing confidence in the technology and regulatory frameworks. Each new entrant brings additional legitimacy and helps establish industry standards that benefit all participants.

The tokenization initiatives by BlackRock and Franklin Templeton represent just the beginning of a fundamental transformation in asset management. Their participation validates the technology and accelerates adoption, but the full impact will unfold over years, not months.

As these pioneering funds mature and demonstrate their value proposition, we can expect cascading effects throughout the financial system. More asset managers will launch tokenized products, infrastructure providers will enhance their offerings, and regulators will develop clearer frameworks. The lessons learned from these early implementations will shape best practices for the entire industry.

For investors and market participants, understanding these developments is crucial. The shift toward tokenized funds isn't just about technology—it's about reimagining how financial products are created, distributed, and traded. Those who grasp these changes early will be best positioned to benefit from the opportunities they create.

The participation of BlackRock and Franklin Templeton in RWA tokenization marks an inflection point where blockchain technology transitions from experimental to essential. Their tokenized funds serve as proof points that traditional finance and blockchain can successfully merge, creating products that combine the best of both worlds. As we examine the investment implications and navigate the regulatory landscape, one thing becomes clear: the future of asset management will be increasingly tokenized, and these early moves by industry giants are lighting the path forward.

Understanding how these developments integrate with the broader DeFi ecosystem and future outlook for tokenized assets will be essential for anyone participating in tomorrow's financial markets. The revolution isn't coming—it's already here, led by the very institutions that define traditional finance.