$1.5T Franklin Templeton's Massive Bet on Crypto with SVP Sandy Kaul

Franklin Templeton has entered the chat. And maybe more broadly, TradFi has entered the chat. What chat are we talking about, David? The Laser Eye Crypto. Yeah, yeah. The question of today's episode: Franklin Templeton is a TradFi company with 1.5 trillion in assets.

Tradfy because of the name.

Yeah, Franklin Templeton. Franklin Templeton. That is not the name of a DeFi protocol. But what do they think of crypto? And in fact, what does TradFi think of crypto? We have an executive from Franklin Templeton weighing in on all of that. And this was an incredible conversation. We'll get to that later. But a few takeaways for you in the episode. We ask Sandy Kroll, who's the senior vice president of Franklin Templeton, how do you explain crypto to TradFi? Number two, we ask why TradFi has been so resistant to crypto up to this point. Number three, Sandy tells us why she thinks crypto adoption in Wall Street is inevitable. Number four, we ask Sandy's opinion on the Ethereum ETF. And she tells us why she resonates more with the Ethereum ETF than even the Bitcoin ETF. And finally, we end the episode with an overrated, underrated lightning round where we talk about CBDC's stable coins and the 2024 election.

But before we get into that conversation with Sandy, call first a message from our friends and sponsors over.

What were your overall reflections on this episode we're about to get into with Sandy?

Uh Sandy's really cool. Uh Franklin Templeton has been in crypto way longer than I figured the name would imply.

They're running validated

They are staking ETH natively their own money. Um, she really had to specify that one. It was like not customers' money, our money. Yeah. Um, which I read through the lines on that one. Uh and yeah, like their digital asset team, uh, it probably walks among us. They're probably in the chat rooms with us as we speak. Uh, I mean, we also asked her at the very end of the episode who the hell shot out those memes out of the Franklin Tembleton Twitter account. Um, but like there's a lot more under the hood that I think Franklin Timbleton um probably should uh deserves credit for uh for just being way more crypto native, like I said, than the name suggests.

Yeah, we also asked her some of the hard questions like are they gonna come in and try to AML KYC all of crypto? You know? Raised eyebrows on what is TradFi going to do when it meets the uh the cypherpunk values of the crypto sphere. And that is still, I think, an outstanding question. So

You know, Larry Fink had that clip uh about like, hey, what excites you about crypto? And he goes, like, oh, like identity. We're gonna work on identity. And then Sandy is like, oh, identity. I'm like, oh, all the TradFi institutions really like identity. Like, oh, that that scares me. That scares me. I'm not sure I enjoy that part.

All right, guys, we're gonna get right to the conversation with Sandy. But before we do, we want to thank the sponsors that made this episode possible, including Bankless Nation. I'm very excited to introduce you to Sandy Call. She is a crypto bull, and she's also the senior vice president at Franklin Templeton. What is Franklin Templeton? You might ask. I don't know if you're listening to this and are unsure, but Franklin Templeton is an investment management company. So you can thank mutual funds, you can thank ETFs. They manage over 1.5 trillion in assets. So about the market cap of crypto, I'd say. And uh Franklin Templeton is what we at Bankless affectionately refer to as TradFi, traditional finance. They recently came out with a Bitcoin ETF. They have big plans for tokenization. They seem to be, at least from their Twitter account, incredibly bullish on this whole crypto thing. And this intersection between crypto and TradFi, that is the focus of today's episode. Sandy, welcome to Bankless.

Thank you so much. I'm so happy to be here.

All right, so uh we want to hear how you explain this whole crypto thing to folks in TradFi. Like how do you explain what's going on here?

Yeah, so I think that the best way to explain it to people in traditional finance, because there's a lot of just emotional response when they hear about this space, is to bring it back down to reality, right? We have been living in an age where we have seen the emergence of a network economy

through the provision of platforms, right? We are living in a platform economy age. And we see this through Uber, Facebook, Google, so many, Amazon, so many of the companies that people have invested in.

uh and have been able to make really significant profits in in most instances if they timed it right um and that has been the big growth opportunity from an investing perspective in this age.

What we are entering is the Network Era 2.0 that we call it, where instead of having a platform-based economy that is owned, where the platform is owned by a company and you can invest in the stock of a company, we are moving into a protocol economy where the platforms are now open architecture, anyone can join. And the way that you invest in these open networks, these protocols, is through the coins that they issue and the coins that the apps that sit on top of them issue. So it is a huge innovation space. It is a huge growth space.

That is something that we have definitely experienced as podcasters is trying to help people get their heads around what's going on in crypto. And Sandy, I think that's a fantastic articulation that I've actually never heard before. Uh, a platform centric articulation of what crypto is. Is this um an articulation of crypto that you've developed? Because I would imagine uh explaining crypto to the outside world is something that you've done uh a number of times. Is this an articulation that has resonated with uh clients and customers of of Franklin Templeton?

Yeah, I think it really is, David. I think it's starting to cut through a lot of the noise and a lot of the emotional responses that people are having. You know, new things are often scary, right? And, you know, what I try to explain to people is think about the 1990s and the way that we saw the huge explosion in internet stocks. And you could argue that maybe any company that issued something that said it was internet got tons of buying interest, and that helped to lead to the dot-com bubble.

But we're almost seeing exactly the opposite reaction now. We're almost seeing the fact that there's this whole new set of new innovations that are emerging that are transforming the way that the business models work. But because it's different, almost no one from a huge when you think about the size of the overall investor pool, almost only a small percentage of people are investing in it. And so whereas we may have overhyped the internet stocks, I think we're underhyping what is happening in the crypto space when you think about it from a broad investor portfolio position.

That's so interesting. Under hyping, what's going on in the crypto space? You hear that, David? We got some more hype work today.

No one has accused Bankless of that before. But I think the perspective you're taking is really from TratFi. They're basically underexposed to this asset class because they're not treating it the way they did the um the stocks, the internet stocks of the 90s. And so your framing of this, just to make sure I understand, is like we have a kind of like maybe this is the framing of the internet. And I I I sort of think about you know Chris Chris Dixon's like framing of you have web one and two, and then you have web three, right? And it's similar to that, whereas web one and two kind of gave us this platform type of uh economy. So we got our Ubers, we got our Amazons, we got our our our Facebooks, of course. And that was a platform type of network. And now we have a protocol uh network and a protocol economy. So these would be things like Bitcoin or th or things like Ethereum or things like Uniswap. And the reason you're you're maybe I'm guessing that you are painting this narrative to folks in traditional finance is because everyone knows within living memory, everyone felt the 90s internet, right? And they and they certainly felt all of the impressive wave of innovation that hit us. And there were a lot of skeptics at the time, particularly in kind of the early 90s, right? Is this the internet thing? What is it? I I remember there was uh David Letterman with um Bill Gates. It was kind of uh an interview where um Bill Gates is trying to describe the internet, and he's describing something that like probably is best manifest in um Spotify, you know, like it's it's the ability to share music, and and and um Letterman goes to him, he's something like uh oh, so you're talking about radio? I mean, we already have radio, and the crowd laughs, right? So mm, this this is kind of the the analogy that you're using, and you're saying is that starting to lat the to land with uh traditional investors?

I I think that it is starting to because one of the odd things of about the last few years is that traditional investors have tried to separate out

The technology from the ecosystem that's actually creating and developing the technology. So, you know, a lot of institutional and a lot of professional investors will say, Oh, yes, well, I'm very interested in investing in blockchain, but they're not actually investing in the models that blockchain is creating, right? They keep waiting for some magical moment that blockchain transforms into something they recognize from the current world. And I think that, you know, the evolution of the space in the crypto domain has advanced so far now that it really is becoming easier and easier to get them to understand that there's a whole new story emerging, and that that new story is where growth is really going to move.

Um, and we may even see a lot of the platform companies from this Web 2 era begin to move in that direction as well, which would just be almost the ultimate affirmation of this idea that we're moving from the network era 1.0 to the network era 2.0.

Sandy, Ryan and I got into crypto in 2017 and that much earlier in phase in crypto's like lifespan. We were not ready to talk to Franklin Templeton back in 2017 as an industry. We just weren't ready for that. But as I've watched crypto develop and become more mature, I've also seen society look more and more towards futurist tech as investment uh vehicles. And so like as uh crypto has become less like a wild west, a little bit more civilized, uh, the traditional world of finance has looked into more and more futurist uh investments. And so like we I've seen this like you know, collide slow collision of the R2 worlds kind of come together. And I think that's why crypto people right now are very excited about the Bitcoin ETF. It is the first actual point of contact between our two worlds. And I want to I want to ask you about like when you're talking to your clients and your customers and the the capital base that is in the world of Wall Street. Why weren't they here sooner? Like what um uh what were they resistant to about the crypto world? And is it something as simple as they just needed a trusted uh brand, a trusted entity to really be that conduit? Or are there other reasons that um uh they're more still resistant to crypto investment uh opportunities?

Yeah, it's a great question. Um, just for your reference too, I wrote my first big piece of thought leadership about tokenization in 2017 and spoke with a lot of the big TradFi players, and a lot of them got up and walked out, to be quite honest with you. They were not ready to hear it at that point, but they're more ready to hear it. And there's a few reasons, and and it it's not necessarily these bad reasons that sometimes people attribute to TradFi. Uh, number one, you know, they are fiduciaries, right? And so any decision they make, they make on behalf of their clients, and they are personally held responsible, right? So a firm like Franklin Templeton that invests its clients' money has a fiduciary responsibility to those clients, and therefore it is very hard to operate in domains that don't have clear regulations, right? Don't have clear consumer protection. So that is naturally a point where they're going to have to move very slowly because it's very hard for them to operate in any domain where there's that type of uncertainty.

It's also there is a culture within traditional finance that is slow to change. It was a culture that was very much focused on proprietary technology. Just to make the crypto folks feel better, it took a lot of years, a lot of years, for the traditional financial firms to even to begin to embrace cloud technologies, right? They were very much operating with a set of proprietarily built apps, and they felt like the only way they could keep control of their business was through using this proprietary infrastructure. So there has had to be a lot of shifting in the embracing of basically the new era of technologies for these firms to even be in a receptive position to think about and understand crypto. So, you know, a lot of these firms have been around for decades and decades. And so to them, getting into a new marketplace within the first 10 or 15 years is actually pretty fast, right? It's just crypto has developed so quickly at the speed of innovation and change and really truly creative thinking has been happening so fast. I think that there has been a real, it's almost like one set of uh participants is strolling along the stream and the other set of participants is running on a treadmill, right? So the speed with which they tend to operate is very different. But that is starting to come together. And I think you're right. Uh, what we're really finding is that we're starting to now pull together the ingenuity of the crypto domain.

With, I think, some of the really necessary and important understanding about where consumer protections and controls are required,

that TradFi has been very comfortable operating within. And I think the result is very powerful.

Yeah, I mean we certainly agree with you. And and so I I um I I think the case you make of why there's been some resistance to it makes sense. But like I I've got to say, maybe just uh zoning in on this sort of visceral reaction, you you you said you came out with a thought piece, you know, in tw 2017 or some somewhere along that. And there was like a reaction of uh get up and walk out. Like there seems to be this something we didn't see in the 90s with the tech stocks, right? And so of course you have to um embrace this new world of the internet, and that's hard to wrap your your head around. But um it's there there was never there there was like some doubt as to whether you know stock price was as valuable as it was, but there was was never kind of the castigation, there was never the sense in traditional finance that um made people want to get up and walk out. Like this the sense that crypto is just full of Ponzi schemes and you know, like it's uh fraud and it's all of these things. Why do you think there's that kind of stronger reaction here? Is it because they're just not?

keeping tabs on the industry or is there something else? I mean crypto is kind of like disrupting some things in traditional finance as well. I don't know if that's scary for folks or if that factors into this.

I I I definitely think that's absolutely one of the factors. I think, you know, there's a few things, right? I think that some of the reason people had a negative response to that report that I had come out with in 2017 is I really spoke about tokenization as replacing traditional equities and bonds over time.

Ah

Very that was a very threatening proposition to people whose entire core business has been based around equities and bonds. Now what we're seeing is is it's uh it's transforming them.

rather than replacing them. But, you know, we're still in early days. I still think in the long run, you know, the structure of an equity or a bond could be improved. But that will happen over time. I do think that, you know, one of the reasons why there is this backlash

is, you know, some of the nomenclature that's used, right? That the crypto domain was originated by the cypherpunks.

That's a scary term. That sounds very radical.

sure.

I think that some of the early uses when Bitcoin was really flying under the regulatory perimeter through the Silk Road and things, people have a lot of lasting memory about that.

But I think that the most important one is that everyone in traditional finance makes their living about modeling an asset class that has been really well researched and modeled for many years, and they understand the underlying value drivers. The biggest pushback I get from a lot of people who are unfamiliar with the space is well, what are any of these things worth? I mean, I can hold up a piece of paper and tell you this piece of paper is really valuable and you can bid for me on it, and if people are willing to buy it, doesn't mean it's valuable. So they're mistaking this idea of what does a network effect accomplish? It's not that there is no asset there. The asset is the network that is supporting and participating in the creation of the commerce that takes place on that network, right? But that's a very new concept to measure in terms of the network itself being the value, right? Um, and that moves away from a lot of the traditional ways that analysts in traditional finance analyze assets. So

You know, that has been a new situation that they've had to deal with. And tokenomics is a completely new type of analysis that they've had to think about and learn. And, you know, a lot of people's tokenomics are still kind of developing, right? And some there's not a lot of standardization. So, you know, it's taken a lot of commitment to really understand the space. And I think I'm lucky that Franklin Templeton is a firm that is very committed to understanding that.

Okay, so so let's get into that. So if that's how you kind of explain uh crypto, you you talk about platform networks versus protocol networks, and these are new forms of networks. You're finding yourself in the position of also having to explain a new asset. So you can't um get the exposure to the protocol uh network in a stock necessarily. And that's how most in traditional finance will have gotten exposure to the upside in a network. There are these new assets, these things called tokens. So could you get into that, Sandy? How do you explain tokens to people in traditional finance?

Right. Well the first thing we have to explain is that not every token is the same, right? That there's different kinds of tokens and that certain tokens are very suitable for potential investment and other types of tokens probably are not.

Right. And so we try and differentiate between a token that has a table relationship to a modelable economic revenue stream. Whether that revenue stream, whether the token creates an obligation on that revenue stream or not, it is at least representing something that can be modeled and that's growth can be understood, and the revenue generation that's going to come from that can be anticipated and extrapolated. So there's tokens that do offer that opportunity. There's other tokens that may not. When you look at a governance token, when you look at a pure utility token, these are not necessarily tokens that we would put into an investment portfolio for a client because it may not have the same underlying investment case. It still may go up.

It still may be a fun investment for people who want to put money there, who believe in that type of um

Cause or that type of community that they're participating in. And communities will have value, just like networks have value. So you could start to extrapolate the argument. But for now, we're trying to focus on those tokens that represent

the growth of a truly revenue tied, modelable investment entity, right? And just because it's a network doesn't mean you can't model where it's going to go in terms of growth,

uptake, and revenues. And that's where we try and focus as a company.

This is actually where Ryan and I started Bankless, really trying to beat the table on hey, some of these crypto assets can actually become very familiar with tried and true valuation models that the rest of the world will understand. And therefore, the rest of the world will understand crypto via tokens like this. And I kind of think that's actually a Trojan horse to the rest of the crypto assets out there, the whole rest of the spectrum. And I'm I'm really happy that we have these cash flowing token models to take to Wall Street and show them like, hey, they these should be familiar to you. Look what they're doing. They're producing cash flows. And I would have reckoned that that's where, you know, we start our relationship with Wall Street. But then things can kind of expand from there, like first, you know, cash-flowing suit and tie assets like uh MKR maker DAO, for example. But then like when we view tokens as simply a vehicle for a financial asset, you know, we can we can expand what a token is. And as investors become more comfortable with um with crypto assets, then we can maybe uh go a little bit down the line into more uh exotic crypto assets, if you will. And I would imagine this is uh would be Franklin Templeton's plan, where all of a sudden there is this new financial asset to package up and sell to Wall Street. So, like, you know, it starts with the very safe, very secure, very tried and true uh crypto assets, and then it expands from there. Maybe you could shed some light on um Franklin Templeton's future relationship with tokens. What what do you guys have in store?

Well, first off, I think it's important to understand, you know, even what we've already done in terms of tokens, right? We we started operating on public blockchains back in 2019.

Um, we do our own node verification because we believe you cannot understand a network unless you are a part of the network.

Um, so we are actually running our own node validators on networks that we're investing into

E ETH staking. Are you are you're staking ETH, not just running a node, but you're actually validating the chain?

for our our own money and our own chain, for our own knowledge and understanding.

Cool.

We are also putting together, we have a whole research team who's doing individual coin level research and publishing that research for our thinking and for our investors. We have a whole set of multi-coin model portfolios that range from fully systematic portfolios to fully discretionary portfolios that have live track records, many of them now over three years. And we have a venture capital fund where we're doing Series A and early stage investing into the ecosystem where we see growth happening. So we're very engaged in the ecosystem. We are also the firm that has created the first on chain government money market fund, our fund Benji, has been trading on the blockchain, public blockchains since 2020.

These these

These are like tokenized um uh treasuries, like T bills, right? Correct me though, Sandy, on

actually a money market fund, a regular government money market fund where each token represents one share in the fund.