On The Brink with Castle Island - Sandy Kaul (Franklin Templeton) on Onchain Asset Management (EP.660)

Episode Date: August 25, 2025

Wyatt sits down with Sandy Kaul, head of digital assets at Franklin Templeton, to cover Sandy's work with the CFTC and DTCC and creating sandboxes for onchain financial markets. In this episode: How wallets stand to become the hub of asset management Lasting policy for crypto Protecting consumers in an open financial system

Today, I sat down with Sandy Call, the head of digital assets at Franklin Templeton, also serving on the CFTC Digital Assets Subcommittee and Advisory Boards for the DTCC and World Economic Forum. Our discussion touched on shifts in regulatory attitudes, how digital assets will change asset management, and where innovation will gravitate next. It was a pleasure sitting down with Sandy and getting the chance to hear her insights on the industry. I hope you enjoy our conversation.

Matt Walsh and Nick Carter are part of the first. partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans American International Group, AIG, $85 billion. is a different kind of market and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry.

So out of this worry, we have something called the Bitcoin. Bitcoin. Sandy, thank you for joining us on the pod today. Excited to chat. And first off, I wanted to say thank you for all the work you've done in the industry. to push the agenda of digital assets, I would say both in traditional financial markets as well as in the regulatory sphere. I would love if you wouldn't mind touching on the scope of your current responsibilities and your team and what you guys are focused on today. Yeah, great. Well, thank you

for having me here. I'm very excited to join you today and chat about one of my favorite topic. I'm very passionate about the evolution that we're seeing in the markets today and excited to be a part of helping the future come into being. So it's a great time to be in the industry. At Franklin Templeton, I lead our innovation efforts. So that includes our digital asset efforts and our efforts to think about how portfolios are becoming more personalized and more customized. So we kind of see those two trends coming together over time, which is why we've put them together at Franklin Templeton. And in addition to working within the firm, I've been the co-chair of the CFTC's Digital Asset Subcommittee. I'm on the World Economic Forum, Digital Asset Committee, and on the advisory board for the DTCC's Digital Asset Committee.

So trying hard to help influence and create solid and helpful legislation to really get this industry moving as fast as possible. And what are some of the main topics that you're touching on across the Zubstead? different hats that you wear at the moment? It's been a little bit different in each forum. With the CFTC, we've been very focused on the rule of digital assets in collateral, particularly looking at tokenized money market funds and then looking at how some of these new digital assets operate from a bankruptcy remoteness perspective, how we might classify some of the new assets in terms of utility tokens or NFT is in what should and should

not be regulated. So with the CFTC, the work has been cross-industry, both traditional participants and digital natives, really working together to kind of bring a single view of the space into being. And that started honestly with just getting the nomenclature and the naming right. With the DTC, we're much more focused on collateral itself and how the collateral systems operate here in the U.S. and across the globe. And with the World Economic Forum, you know, they think more broadly, and right now they're just trying to differentiate between digital assets, stable clings, and traditional security. So each group has a little bit different of focus, but each of them are thinking about how to bring some harmony in viewing the space across the

world. Yeah, that makes sense. So it sounds like how assets will be viewed from a perspective of what's the collateral underlying and creating efficient systems there as a focus. Are you focused mostly on protecting consumers when you're thinking about how different assets should be regulated. Is it about being in the context of existing securities law or how are you looking at if an asset is backed by real estate, if an asset is backed by treasuries, what classification they should fall under? Yeah, that's a great question. It all starts with consumer protections, right?

That is really why we need these regulatory framework. But I think that when we deal that for most important mandate, then it really is. really comes down to are we making sure with the lessons we've learned for decades and decades of regulatory enforcement, this is in many ways the digital assets space in particular is such an inundative and such a creative community. And it has really opened up the possibility of models that people had not been thinking about, which might have been impossible to do if you were inundating from within the industry. Like I said, Oster Bichmerer within the industry, I don't know who could have come up with some of the innovations that today are really

up and from shape the landscape. But in coming up with such creative solutions, oftentimes people also don't understand why certain protections have been put in over the head. So it's trying to find the balance, really capturing the innovation in the objectorial spirit that was animated the digital asset space and harness it in a way that is as safe as possible for consumers so that over time, the system builds more and more confidence and more and more assets can include in the system. Today, we're still only at $4 trillion in digital assets. And when you look at $105 trillion in traditional assets, there's a lot of room for digital assets to grow, but people

have to gain confidence in the system is going to be more right for tax now. Yeah, definitely. You mentioned personalization and how you approach digital assets. I think with regard to your Franklin Templeton work, can you touch more? on what you mean by that. Are you referencing the different risk tolerances you might have of users or what do you mean specifically? Yeah. So there's multiple layers. That's a great question. There's multiple layers to personalization. The first is, as you said, need to have different portfolio configurations for different risk tolerances. Different people have different risk tolerance because you all would be able to support each of them in their needs. But personalization has gone a lot

further. Now we are really starting to look at what are the specific assets that sit in a portfolio. Do we need to adjust these based on the profile of the individual? How we managing your tax obligations? We can use assets. And then as you go even further, you need the spark to think about how are individuals who wanted to use their assets? As we think about digital assets, more assets come into the portfolio. As by digital flows of money, right now, fitting side by side with my digital forms of asset. And so my whole portfolio starts to become bigger or lower and core as a part of my day-to-day life, not just and all pre-related over decades to retire with. And so, you know, there's lots of assets that we need to think about in

constructing a portfolio and digitization and tokenization is giving us a great opportunity to really get to a point in the near future. We think, where you're going to have portfolios and block where each person's portfolio is built specifically for that. And that's a 100 million debris reversal where we were just 10, 15 years ago. Every portfolio was kind of complied to be established building blocks. Yeah, that makes sense. I think in digging deeper on portfolio construction, with traditional markets, we've seen the evolution of ETFs and different index offerings, which seem to be the de facto way of storing personal money long term at the moment, do you think with digital assets, we land on something similar where mostly in the form of

personal accounts, people will be holding index, ETF products as opposed to assets like Bitcoin directly? Or how do you look at that side evolving? Yeah, I think you're going to hold both, right? But it might change, right? If you think of having an ETF as just an developer for moving a bunch of securities, if we take the S&P 500, and ETF is a route for full of a proportionate share. are 500 different underlined securities. And the only way you've been able to try to move rows efficiently has been an

pool structure in today's world. But when you think about tokenization, it's how easy it would be to have fractional shares of each of those underlying securities as a token. And then you could wrap each of those 500 tokens in a token

and just move a token alone. So I think the answer is both. We're going to both see, see indexes and we're very see them side by side with cryptos. With an eye towards the point you made earlier about consumer protection, how do you look at what we might see being some of these longer tail indexes with tokens that might be more volatile or people might not be familiar with? And at the same time, even today, some of the digital asset treasuries for tokens that are

far further on the risk curve as opposed to Bitcoin, do you look at something that will be your responsibility to look at and contribute to based on your involvement in some of the clinics you're on or will those exist in their own right? Yeah, I think that one of the great things about the digital asset space is that it has developed its derivatives market and staking markets right alongside the development of the market itself. This was something that took a long contract to develop in the traditional financial well. But we've kind of seen that innovation explode kind of simultaneously a little the critical space. And so I think that you're going to get very creative structures on the

market within probably the next 12, 18 months. Well, you're going to see structures that take some of that volatility and about you can see structures that will embed income screens and to become somewhat guaranteed for a structured option stream. So our of us, I think, because we've seen such parallel emanations across multiple pools of the critical space, we're going to be able to. able to jump very quickly into product structure that allows through even these tail coins to begin to become part of portfolios because you're going to be able, I think, to appropriately control the risk so on. And again, going back to where we started, people have different miscarpetites.

So people may want very risky products in their portfolio and other people may want very secure hedge problems. I think there will be rooms of both types of consumers. Yeah, it makes sense. How do you look at the market evolution potentially after the passing of a Clarity Act or market structure bill? And I imagine that that's to do with the attitudes within Franklin Templeton, for example, do you think after that we would get sort of a rush of securities on chain and security tokens, or where do you think we go from there? Yeah, so there's two interesting, I don't call them hurdles, but I would say challenges. Clarity of regulation has been the biggest hurdle by far. And we look like we're finally working through that challenge.

But then the next challenge is really going to be a technology challenge. How do I actually create wallet systems at a broad enough level that I can bring in the millions and millions of people that are currently getting their walk managed through a traditional web platforms into this ecosystem, right? That has been one of the original challenges. This is why we saw the ETX as a product take off. because if you have to have a wall to access form, but to really truly get the benefit of the crypto space,

we're going to want a wallet and to get the benefit in the new technology rails. We at Franklin Templeton firmly believe that a cryptographically protected wallet is going to become our foundational piece of financial infrastructure of the future. We're going to move away from all these fractured account-based structures. I think the second challenge is of our own probably marriage, know the customer, I see Mon-e Mon. today, no your question might also money laundering, K-Y-C-O-M-L,

is a very antiquated process. Every counter-party to a trade as can be their own, they keep their ledgers, they're responsible for updating their own records. If the littlest thing doesn't match, there's an issue of the trades failed. So there's much, much better solutions

using digital ID solutions that are coming out now. Everything is so held, tokens to ZEFAPE proofs. And so I think in addition to the Clariac, we're going to need a specific reworking of how we handle identity in this new system and how we handle KYC, A&L as a result of new identity solution. So infrastructure and identity and legislation. Once we have those three pillar place, we're all set to go. In a good position, yeah. Do you think that long-term asset management moves into wallet-based accounts for the most part? I think everything is going to move in wallet.

I think in 20 years, we will look at wallets as inevitable as people today look at ETFs. There's a lot of debate about ETFs when they're styled. And now, ETFs are foundational building block of most investment portfolios. I think we're going to see a similar evolution and the cryptographically protected wallet my wallet, your wallet, each and us model of wallets, and that will be how we interoperate with the world. We're not going to have checking for accounts,

so we're best into accounts and brokerage accounts and insurance accounts and health care accounts. And we're not going to have this fragmented little difficult cocoach, which just opens up a lot more financial opportunities for each of us as individuals. And do you think these will be wallets where people will store their private, or have a ubiquit key or will they be custodial wallets with someone like a Franklin Templeton

or how do you think they exist? Yeah, there's going to be a multitude, I think, of models, because you're going to get old people like me that are probably comfortable with self-custody, right? I'm going to want someone else taking care of that key for me, but then there's plenty of people who are going to get super comfortable taking care of the old keys and everyone want to have self-custody, you know, crypto, not your keys, not your assets, right? So I think you're going to have a whole range of models. You know, I think the key thing to watch there is where do you insurers fund?

You're going to walk to be willing to insure the whole they could leave wallets. And they may have sort of standards. You have to get that insurance. So that may end up having more of an influence on where we actually end up. But I do believe that you're going to see a whole multitude of models. I don't think there's going to just be one by model. And already at Franklin Templeton, in our system, we can support. poor self-custody, we do sub-custody of tokens we issue, and we support third-party

custody. So I think that interoperability is going to be evident across everything. That's great. Yeah, and you can only imagine there will be improved systems for taxes, inheritance, that there are a bunch of really cool financial levers, I think you can build on to that. Well, and individuals putting their own assets into the wall and providing a source of assets to professional firms like mom, right? Everybody who starts to build equity in their home. Everybody who is creating digital IP, everyone who's creating physical IP that you can put a title to and embed that inside of a token. All of these are going to be, I think, added into portfolio and into the wallet. And, you know, I think individuals become

sources of assets in the future, too, not just buyers of assets. In your experience with the CFDC and the DTCC, how has sentiment changed? in the past few months, even year or so. Yeah, I mean, look, for a while, there was a real problem that we were trying to mandate because untended consequences from letters like the SAB-121 rule and were really creating an uneven plan. You had digitives that were playing by one set of rules,

and then traditional financial participants were being constrained by a different set of rules. And that created a lot of tension in trying to get to the right future place for the industry. What has denied is a lot of those tensions have eased, and there is, I think, a growing sense of we're in this together, want to come up with the solutions that draw on the best of both sides of the divide, right? The regulatory know-how and the ability to deploy these very robust compliance systems

that traditional finance brings with all of the innovations that digital natives bring if you can put those two together, that's really when we start to see the foundation for something to take place. Yeah, it makes sense. And with that in mind, what are some of the key talking points that people are talking about now that maybe they weren't before or what's become realistic? Maybe it's that view of wallets being the eventual asset management layer that wasn't before or how does that change into action? Yeah. So I think that a couple of the things that have become much more actionable, right? Obviously, the Genius Act was the first part of the legislation that passed. So there's been a tremendous degree of conversation and thinking and planning around

stable coins and this effort to seek clarity on what is a stable coin versus what is a yield bearing asset. Because in the traditional world, a yield bearing asset has certain investment security characteristics to it that I don't make stable coin overs. What? be part of their products, but you've got this messy kind of landscape where you've got entities paying out rewards on stablecoins. So I think right now people are just trying to clean up parts of the Genius Act that left things a little uncertain so that there's more clarity to build the system around. There's a need for cash and cash-like instruments that stable coins provide, and there is a need for yield-bearing instruments, but they don't necessarily have to be the same

thing, right? And this is where I think that there are opportunities for traditional players who have been able to operate in cash-based systems for hundreds of years now to bring some lessons to the stable coin provider. I think that you're going to see more innovation around stable coins happening now that you've got big banks coming in and now that you've got big financial players like the credit card companies and things able to come in in a regulatory way. a regulatory compliant way, they are going to bring innovations that the first batch of stable coin providers just didn't have, I think, the broader financial view to really be able to successfully navigate. So I think you're going to see a lot of interesting innovation competition there,

because now you've got, I think, a lot more people focused on the space and how to optimize it. And then as you started to mention, it's already starting to spill over to the next tier, which is how do I take some of these assets that people trade every day and start to move them into the wild-based system, the indices, the ETS, the securities, how do I start to bring these on-chain to start to gain some of the efficiencies that the blockchain offers in terms of settlement, security, speed, velocity, and also the ability to remove some of the fees and the costs that we pay today. My hope is that where crypto was initially perceived as a potential threat to the U.S. dollar and U.S. financial system, I'm hoping people are seeing now with the proliferation of stable coins that it is a strengthener to those items and that that will help us when it comes to clean regulation that advantages innovation industry. Yeah, I think that's helping. I think that the big aha moment still is yet to come. And that aha moment for us at Franklin Templeton was when we realized just how amazingly efficient public blockchains can be. Like our view is that public blockchains are going to become global utilities on which all records are kept. This idea that an individual company or even an individual,

government is going to keep their records on their own proprietary, mainframe-based systems, and not on blockchain, we think that's going to prove impossible in the long. When cloud technologies came out, a lot of people, particularly in the financial industry, said, ah, we will never, ever, ever. The cloud that's so insecure. And what they found out is the cloud is way more secure than their mainframe-based systems that can be hacked, and we're seeing that play out in real time for companies and still trying to be proprietary database systems. And I think that you're going to see that same evolution

and thinking around blockchain. So to us, these public blockchains are the ledgers for the entire globe in the future. And when that penny drops, like when people realize that, oh, my God, I can buy in today to something that every record in the world is going to be kept on, that's why I think people are going to get super excited. And we're going to really just see interest in this species blown. Yeah, I completely agree. The accessibility and the ease of access to global markets wherever you are is incredibly compelling. With that in mind, one trend we've seen at least, especially as we've seen the globalization of on-chain markets, but also financial markets, have been a lot of these social engineering attacks and cybersecurity rooted attacks. How do you look at that, especially given your roles, both at Franklin Templeton and with regulatory bodies? Do you expect there will be standards that will be set by the public sector in terms of here's how on-chain transactions need to happen and here's a level of security?

Will it be standards set by asset managers or folks in the private sector? And how do we get to a point where people feel safer and are safer? Yeah. So I think you're going to have multiple tiers. I mean, I think the first thing to understand is that a lot of this highest profile failures in the system over the last few years have had nothing to do with the blockchain-based egos. Yes, completely agree. So many people miss that when they talk about that, but things like FTX being a harbinger

of crypto space being unsafe. I'm like, FTX was not operating as a crypto company. They were an exchange that was operating on traditional rails and the problems that they were having was because they were not on blockchain and there was not transparency. So I think that's the first most important thing to understand is that when you are truly talking about the blockchain ecosystem, most of the issues that had been had been had either when you're trying to cross chains or when you're trying to deploy new kinds of updates that, you know, haven't been potentially as fully tested as possible. But I do think you're going to

see both kind of a federally or a government-sponsored set of controls that they're going to insist upon. Then I think firms like Franklin Templeton in the system we built, we already have our own sets of controls we've created. And they include very important things. Like right now, our system operates across nine different public blockchains. What we do is we open wallets for every customer on every one of those blockchains. And if they want to move their assets from one blockchain to another, we actually do that as a transaction and we transact and close out the position on one blockchain and open it on another. We don't transfer. And we do that because it gives us more control, it gives us more certainty, we're not leaving those transactions vulnerable

to any potential hacks, right? And I think that that's a level of control we built in because we saw the need for that. So you'll have both self-imposed controls. I think there will be regulatory mandated controls. And you're already seeing it, right? You already see Tether had to delist in Europe because of the markets and crypto assets rule, the mica rules. They had to delist CRIPTether there. Now Tether can make adjustments. get back into that marketplace, but that's just an example of how, you know, once regulatory oversight comes in place, we may need to tweak things about the current system. Yeah, and I think you made an important point that this is in no way a crypto-specific issue. I unfortunately know

plenty of family and friends that have succumbed to fishing attempts on their traditional banks, and so you put out a bad wire and it can happen to anyone really, so we have to be vigilant. Look at all the things that are happening with like, you know, all of these automated payments these days and all of things are constantly getting from the traditional banks. And it's not unique to crypto and exactly right. Yeah. Or the buy bit exploit. Like that was just a false web page from what I remember hearing about it, which again had no crypto-specific attack vector whatsoever. As you're seeing this market be built out, do you think that a lot of the technology that will enable on-chain global markets will be built?

in-house by folks like Franklin, Templeton, and larger existing financial players, or do you think there will be new companies emerge that they'll be compelled to work with, whether that's wallet as a service or stable coins as a service or something of that sort? Yeah, I mean, look, we built our in-house system because when we got into this space in 2018, there was no vendors that we could even go to that could regulate in player. So that's one of the advantages and one of the disadvantages of being a first mover and early into a space. But I think that over time, this is not an area where people are going to go, I think, build their own to the same extent we've seen historically. And we've already seen this play out with cloud providers, right? No one's going out

and building their own cloud facilities, right? People are subscribing to the players that can achieve the scale that will make that cost effective for others to take on as a service. And I think you're going to see a very similar model play out where you're going to have very large, very dominant providers. But those providers, unlike today's centralized companies, are going to be decentralized and people are going to be able to share in the ownership of those. And that's why we call them utilities, right? We really believe that these are going to become utilities that everybody utilizes and therefore the value is much more evenly distributed. And the network effects are stronger because people are not just users of the network, they're also the owners of the network.

And that's one of the really genius aspects of the click and recursive. Yeah, completely agree. In closing, I wanted to ask you a last question, which was, for people listening who might follow the industry from a distance or just see some of the headlines, what are the topics and questions that you think people should care about, what's really important? Yeah, I mean, the questions we're getting the most these days is explain how the value is being, right? And we become very close to this. Once you're in the space, we get, you know, you can go deep very quickly and you can really spark to get into a lot of the nuance of how different models are working and it's very exciting and the innovation is happening so fast that you don't realize quite how deep you've gotten until you start to speak to people who haven't been following the space at all. And then it's rewerewerew. rewind, rewind, rewind, and start back at the, look, the way that we have kept books and records in the past has been very inefficient because each organization has to have their own. And then if you want to do any kind of transaction, you have to reconcile those two sets of books and records.

And now in this new ecosystem, there's just one record that everybody shares. Like, that's always where you have to rewind to start. Because, that's really at its foundation, the most important innovation that we've created over this loose space, it completely changes the way that markets can operate. And if we don't go back to that foundational piece of change, it's hard to really get people to understand the value that we'll believe in. Yep. That makes sense. Well, Sandy, I really appreciate you joining and I enjoyed the conversation. Hopefully we can do it again at some point. It'd be great. I enjoyed the conversation as well.

Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.