On Tuesday investment firm Franklin Templeton made a preliminary SEC filing to start a blockchain-based mutual fund for government securities. In the filing, the company said ownership of the fund’s shares will be recorded on the Stellar blockchain network, along with the traditional recording by the transfer agent.
However, the company clarified that it will not be investing in any cryptocurrencies. Only the data of fund transactions will be stored on a blockchain, not any personal information. The motive for using blockchain is to provide transparency to shareholders and also allow reduced settlement times.
The complex mechanics of using a blockchain will be hidden from investors.
Franklin Templeton’s mutual fund will be the first to use a public blockchain to record the ownership of shares. Fund administration firm Calastone already uses a distributed ledger technology (DLT) for its backend systems. Franklin Templeton said it plans to move all ownership records solely on the Stellar blockchain in the future.
If the fund launches, investors may only purchase or redeem shares of the fund through the mobile app, and investors will not be able to trade shares with each other on the blockchain.
As with any blockchain transaction, a public and private key are required. But the private keys used to sign the wallet transactions will be safeguarded by an un-named custodian. That way, investors don’t have to worry about losing their keys.
Using the public key, investors can view their investment balance through their wallet app. Alternatively, they can use a public block explorer capable of displaying the activity of the Stellar network. The fund aims to keep a stable $1 share price.
Meanwhile, Franklin Templeton will be responsible for the transaction fees denominated in Stellar Lumens for using the Stellar network. That simplifies the usability for investors.
Franklin Templeton is an investment firm with assets under management of about $709.5 billion at the end of July 2019. Although the new fund will use blockchain, the company said there are several risks attached to the experiment. And manual records with the transfer agent will be given priority in case of a discrepancy.
