How the World's Largest Asset Managers Use Ethereum

Transcript

Good evening, everyone. My name is Jaehyun Park, and I'm an equity derivatives trader at KB Securities. It's a great pleasure to be here today moderating a discussion with such distinguished panelists. Over the past few years, we've heard a lot about institutional adoption of blockchain technology. But today, I want to move beyond the headlines and talk about what's actually happening. How are major asset managers using Ethereum and other blockchain networks in practice?

Or what are the real benefits? And what still needs to change before we see broader institutional adoption? To explore this question, I'm joined by three fantastic panelists. Chetan from Franklin Templeton, Andy from BlackRock, and Matthew from Ethereum Institutional. Thank you all for being here. So let's get started. Before we dive into specific questions, I'd like to start with a broader question first. We hear the phrase "institutional adoption" all the time. What does that actually mean?

I'd like to hear a brief perspective from each of you. Chetan, perhaps I could start with you. Franklin Templeton has been one of the early movers in bringing traditional financial products onchain, right? From your perspective, what does institutional adoption actually look like today? Yeah, thank you for the question. Glad to be here. I know we only have 15 minutes, so I will make my comments brief but to the point. I'm responsible for commercial partnership development for the APAC region, and as some of you may know, we're one of the first pioneers to launch a tokenized money market fund, and that was back in 2019 in the US. It's called BENJI,

which is also the name of our funds, as well as the name of our operating system, the securitization and tokenization system that we offer. So to the question of what it means to be institutional in adoption, you can obviously have a retail use case when you're taking a traditional money market fund, tokenizing it and offering it to a retail share class or retail audience to give them the benefits of blockchain and to lower the cost of some of the fund expenses. But for institutions, you're giving them a different type of benefit.

A lot of corporate treasuries, a lot of high-frequency traders, a lot of hedge funds, etc. They're looking for different use cases for the same product. So it could be the fact that we can offer intraday yield, or we can offer a use case for collateral using the tokenized product, or we can use a tokenized money market fund for corporate treasurers who want to move that money faster, always on, 24/7, 365. So those are some of the use cases that I think are more relevant to the institutional market and for institutional adoption, as opposed to the retail use case.

And of course, one of the first chains we started using was the Ethereum chain because of its security and its governance, as well as where the total value locked and adoption is taking place within the client segments. So that's sort of the summary of my response. Thank you, Chetan. Andy, let me bring you in here. So are you seeing a similar shift at BlackRock? Yes. Hi, everyone. Great to be here. I'm Andy. I lead the iShares equity product strategy here in APAC, responsible for commercializing not just the equity side, but also digital asset ETFs.

I think a lot of what we do at BlackRock is very similar to Chetan at Franklin. So I try not to talk too much around the money market fund side, because definitely we do hold one of the largest tokenized money market funds in the US, BUIDL. A lot of the use cases have been discussed. Maybe for me, I'll also throw in more from a kind of BlackRock point of view of how we provide linking, provide access to different channels. We're providing from DeFi to the TradFi world, but also TradFi to DeFi.

So on the ETF side, we do hold one of the largest Ethereum ETFs globally, the ETHA. So we see institutional usage of this product beyond the money market fund that we talked about. A lot of those are real institutional clients like sovereign wealth funds, the pension funds; they want to access Ethereum as a coin. Obviously, that is very important because using an ETF, we have one of the best custodians in the market, an institutional-level custodian, making sure individual investors, institutional investors get access to it in a much safer, securitized way.

That's also where, from an ETF point of view, they also tap into their portfolio management systems, day-to-day management. So what we try to do here is really bring the two sides of the world together. Thank you. Matthew, I'd love to hear your perspective as well. Looking across the broader Ethereum ecosystem, where are you seeing the most meaningful institutional adoption today? I think if we look beyond the assets we see, so the money market funds, the stablecoins, etc., institutional is like credibility, seriousness. So Franklin are tokenizing their own funds; they have that capability. BlackRock have worked with Securitize, now a public company, and recently with Bank of New York and JPMorgan on, I think, 14 new funds, all on Ethereum. But I think really the

key thing there is that now the partners that you're working with are institutional. They have institutional rigor, risk management and capabilities. So now when an institution wants to come and use a chain like Ethereum, the technology capability and integrations are such that you feel comfortable, and your partners are institutional as well. Thank you, Matthew. Now I'd like to move on to a more specific question about blockchain selection. Franklin Templeton has deployed its tokenized products onchain. I mean, I've heard you guys are putting them on multiple blockchains, networks.

How do you decide which blockchain to use? What matters most? Is it security, scalability, liquidity? Can you tell us about it? I'm sure you're going to talk about Ethereum. Where are you seeing Ethereum's competitive advantage come from? Of course, we'll talk about Ethereum. It is one of the 11 chains that we have integrated on and developed on. So I think in the early days, when we started the experiment on blockchain, which was almost 10 years ago, the question was which chain is going to be prevalent and dominant.

And I think Ethereum is certainly one of those that has stood out. And you can see it in the statistics. It is, in terms of total value locked, in terms of projects, it is the dominant chain in terms of assets. So for that reason, not the only reason, but ultimately it is where the client wants to own the asset. And if it is Ethereum, then we will offer it on that chain. But the broader question of which chain you select comes down to sort of what the use case is. Are you looking at a very fast chain like Solana, for example, which can do 65,000 transactions per second at peak? Are you looking for a very cheap chain, or rather a very cost-effective chain, such as Stellar, which is the default chain we use given that it has such a low

gas fee in terms of $600K for all of the transactions? Or are you looking at security and governance, which are obviously the boxes that Ethereum ticks, as well as where the client demand is? So it ultimately comes down to use cases. I think when you look at certain chains like Solana, you can look at the gaming and payment use cases. But when you look at Ethereum, that's where the institutional adoption is happening, because it is secure and well-governed, and where the demand is being met. Thank you. Andy, I'd like to bring you into the conversation.

ETFs have fundamentally changed how investors access our financial system. Do you see tokenization as another distribution innovation, just like ETFs, or a total shift, a fundamental change of the system? At BlackRock, we think going forward, potentially the world will still have the traditional finance systems, but also DeFi systems. Currently we see the DeFi system is still, obviously, still developing, but in the future we see there will be more and more happening in the DeFi world, but there will definitely be someone still sitting in the TradFi world. Just think about nowadays, when you talk to my mom and dad

about setting up a wallet, investing in DeFi, they have no idea what that is. Or maybe they don't even know what an ETF is. So there's still definitely a group of TradFi users sitting there. But if you talk about my next generation, so we talk about it, potentially everything they do will be online. Nowadays they play games online, they trade coins, right? A lot of that payment will be settled online, so also on the blockchain. So definitely we're seeing, you know, the world going forward, there will be a different ecosystem on that.

So it's no longer just a distribution channel. But what we are currently seeing is definitely more of providing financial products, tokenizing those financial products on the blockchain. So for example, we are seeing already, even in ETFs, a lot of firms are doing TRP on the blockchain, so that's providing access to investors from a digital wallet to get access to traditional financial products. So I think that would continue.

In the previous panel, we had some of the providers there who also tokenized some of our portfolios as well. So I think that's definitely down the road. But I think, thinking about TradFi staying in TradFi, using Ethereum, digital asset ETFs, I think institutional investors are definitely increasing. We are seeing pension institutions doing that. And interestingly, in APAC, in this market, we're seeing a lot of high-frequency traders like hedge funds.

They are using ETFs and arbitraging with the underlying coins. So that's a lot of investment strategies investors are able to deliver, whether through different channels. Thank you. Thank you for a very interesting perspective. I'd like to explore that a little further. If tokenization simply makes existing financial processes faster and cheaper, that's already valuable. But where do you think it becomes truly transformative? What becomes possible with tokenization that simply wasn't possible before? Chetan, I'd love to hear your perspective on this.

From Franklin Templeton's experience, where do you see the biggest opportunities beyond operational efficiency? Well, like I said, it is beyond the operational efficiency, which you can define as the cost-effectiveness of running things onchain, and the abilities. For example, we've reduced the ability. We offer our BENJI, Singapore BENJI, for instance, at $20, U.S. BENJI as well, per transaction. Most minimums for funds today are $1,000 $5,000.

So I think that's a case of: it's not just about the operational efficiency of reducing transfer agency costs. It's about the benefit to perhaps a retail audience, or it's about the other benefits to institutional audiences, whether it is the ability to move that money faster, 24/7, 365, on a Sunday, or moving it between stablecoins into tokenized products, or moving it, giving intraday yield and programming daily interest accrued and payable.

Those kinds of things don't exist with traditional funds. And that's the point we're trying to make with blockchain, is that, you know, I'm very interested in hearing about the other use cases that the Ethereum Institutional team might have as well. But for us this is just the start. It is just with a money market fund. There's so many more things we could do with other types of asset classes, such as private credit, private alternatives, you know, helping improve the efficiency of those funds as well. I think, Andy, you'd like to add something? From... I think, you know, what we're seeing is, as I mentioned, right, like there's that speed, like, you know, the true world in the future. But, you know, what here at BlackRock we try to do is really, as asset

managers, providing financial products to investors. From a tokenization point of view, obviously that access is key. We are very lucky here in APAC, but also, you think about a lot of the developed markets, we are very easily able to access financial products. But you think about a lot of the emerging markets, whether it's India, Brazil, right? It is very difficult for them to access that. So I think, you know, having a blockchain, a lot of the activities happening around that, they're going to benefit a lot of investors and populations going forward.

Thank you both. We've talked about the opportunities, but I'd also like to discuss the challenges. Matthew, let me bring you into the conversation. From your conversations with financial institutions, what are the biggest barriers preventing them from moving more activity onchain? I mean, is it regulation or privacy? Anything else? Yeah, it certainly has been regulation, and depending where you look, it can be that. But assuming regulation will be largely fixed, then it is the initial integration.

It's not simply "I now have a tokenization partner." Every bank and asset manager has legacy systems that they need to integrate into as well. So how do I plug that in? How do I set up my workflows to incorporate that? I think the key thing is, once that has been achieved and once it's integrated, because of the ease of tokenization, adoption can then be very quick. And so the other side, privacy is absolutely a key one. And so, whether it's at the layer two or on mainnet through various privacy solutions, that's now actively developed to meet institutional needs. And I think one thing that points towards the challenge of integration and the upfront investment is that what's interesting about institutional adoption is it's not necessarily the challengers that are setting the

speed and the pace here. It's the largest institutions, it's BlackRock, it's Franklin Templeton, because they have the capability and capacity to invest in this and push it forward. All right, thank you. We've talked about what's happening today, the opportunities ahead, and what challenges remain. Okay, since we are short on time, I'd like to wrap up with one final question for all three of you. The question is: looking three years ahead, what institutional use case for Ethereum do you think the market is still underestimating today? Let's go with Chetan first. Can you make it brief, please? Yes, I'll make it brief.

Look, I would love to see use cases where underlying securities are completely tokenized onchain using Ethereum. And that would enable us to recreate how we traditionally think of wrapping investment products like alternative funds or private credit, private equity funds. That, I think, is a game changer three years out. Thank you. Matthew? I think there's still, understandably, an idea that all chains are kind of the same, but as adoption picks up, it will become clear, both with Ethereum's roadmap, that Ethereum and its layer twos offer features and guarantees that will cement it in institutional adoption.

Thank you. And Andy? And really echoing Chetan, what you mentioned: how, going forward, if we can see various financial products or assets being tokenized, especially on Ethereum, so seamless trading in terms of how we can create portfolios or products for clients. I think beyond that is more like, you know, from a portfolio construction point of view, we hope to see more institutional clients, you know, really investing in Ethereum ETFs, so they're adding that to their portfolios.

That would be something I would love to see. Thank you. Those are really interesting perspectives. I think one thing is clear from today's discussion: institutional adoption is no longer just exploring blockchain technology. It's increasingly about how blockchain technology can be integrated into our real financial products and financial market infrastructures. I just want to thank Chetan, Matthew and Andy for sharing their insights today, and thank you all for being here. Please give a big round of applause to our panelists.

Thank you.