Franklin Templeton Extends Tokenized Collateral to Bybit: The Off-Exchange Model Is the Story

On Monday, Franklin Templeton announced the expansion of its off-exchange collateral program to Bybit, according to a press release reported by CoinDesk. The arrangement lets Bybit users and wallet holders pledge shares in Franklin Templeton's tokenized money market funds, representing about $686 million in net assets, as collateral to borrow the stablecoins USDT or USDC. Critically, the underlying assets never move to the exchange. Regulated custody platform ByCustody holds them off-exchange, with the value mirrored inside Bybit's trading environment.

That mirroring mechanic is the story. It severs the historical trade-off between earning yield on an asset and posting it as collateral, and it does so without surrendering custody to the venue where the trading happens.

The Mechanics

The shares are issued through the Benji Technology Platform, Franklin Templeton's proprietary blockchain-integrated record keeping and transfer agency infrastructure. Benji currently pays a 3.7% annualized yield based on the latest seven-day rate, per CoinDesk. The investor pledges those shares, borrows USDT or USDC against them, and keeps earning the underlying yield while the collateral value is reflected in real time inside Bybit. The asset works twice: once as a yield-bearing money market position, once as trading collateral. Under the prior status quo, capital sitting on an exchange as margin earned nothing.

Why Off-Exchange Custody Matters

The design choice here is the substantive one. By keeping the underlying assets with ByCustody rather than on Bybit, Franklin Templeton addresses the counterparty exposure that has defined the post-FTX institutional posture toward centralized exchanges. Institutions want the trading liquidity a venue provides without carrying the venue's balance-sheet risk on their custodied assets. Mirroring resolves that tension: the exchange sees the value and can enforce margin against it, but the asset itself remains in regulated custody outside the trading environment. For allocators whose mandates restrict exchange-held assets, this structure is the gating requirement, not a feature.

The Distribution Play

This is not Franklin Templeton's first off-exchange collateral partnership. The firm already offers its tokenized money market funds to customers of Binance and OKX, and Bybit now brings the count to three top exchanges. Sandy Kaul, Head of Digital Assets and Innovation at Franklin Templeton, framed the logic directly: an investor can now look across the top exchanges and use collateral more optimally while earning yield on it, which she called a critical unlock for the ecosystem. Kaul also pointed to the asset manager's own opportunity, designing products specifically for what she termed the wallet-based investing channel. The read for institutional strategists: Franklin Templeton is not chasing a single venue, it is building a distribution layer that makes its tokenized fund the default collateral asset wherever crypto trading concentrates. Exchange-agnostic distribution is the moat.

The Competitive Signal

The expansion reflects a broader industry pattern. Several crypto platforms accept tokenized funds as collateral for trades. CoinDesk notes that Crypto.com and Deribit allow eligible institutional and professional users to back trades, including derivatives positions, with BlackRock's BUIDL fund. Two of the largest traditional asset managers are now competing to become the collateral standard of the crypto trading stack. That is a different contest than the tokenized fund launch races of prior years. The question has shifted from who can tokenize a money market fund to whose tokenized fund the exchanges and their users actually pledge. Collateral acceptance is a network effect, and network effects compound to a small number of winners.

The Gap That Remains

The facts here describe acceptance across three exchanges and roughly $686 million in net assets represented by the pledgeable shares. What the article does not establish is utilization: how much of that collateral is actively pledged versus simply eligible. Eligibility on a venue and adoption by its users are separate milestones, and the release documents the former. There is also an unstated dependency on the mirroring and custody plumbing performing under stress, precisely the conditions in which off-exchange collateral models are supposed to prove their worth. Those tests are ahead, not behind.

What This Means for Markets

First, the competitive frontier in tokenized funds has moved from issuance to collateral utility. The differentiator is no longer whether a fund is on-chain but whether trading venues accept it and their users pledge it. Allocators should track acceptance breadth and utilization as the real adoption metrics.

Second, the off-exchange custody architecture is the institutional enabler. ByCustody holding assets while Bybit mirrors value is the structure that lets mandate-constrained capital participate without exchange balance-sheet exposure. Custody design, not yield, decides who can play.

Third, this is a two-horse standard-setting race between Franklin Templeton's Benji-issued funds and BlackRock's BUIDL. Collateral acceptance concentrates. Watch which venues each captures.

The zoom-out: tokenized money market funds are becoming working capital inside the crypto trading system rather than static allocations. When an asset earns 3.7% and simultaneously backs a leveraged position, the boundary between traditional cash management and crypto market structure thins considerably. The firms building the distribution and custody rails for that convergence are positioning for the layer beneath the trade.