Franklin Templeton sets up money market funds for stablecoins through government bond strategy

Franklin Templeton, a leading asset manager with a strong position in digital assets, has fundamentally restructured its two institutional money market funds. The adjustments focus on creating reliable reserve mechanisms for stablecoins and facilitating 24/7 blockchain transactions—two developments that underscore the growing integration of traditional finance and decentralized markets.

LUIXX: Short-term U.S. Treasury securities as fundamental reserve backing

The LUIXX fund—fully known as Western Asset Institutional Treasury Obligations Fund—is optimized to meet the requirements of the GENIUS Act, a law enacted in 2025. This legislation sets specific standards for regulated stablecoins, with a key component requiring issuers to hold adequate reserves.

LUIXX is now set to hold exclusively short-term U.S. Treasury securities with maturities under 93 days. This investment strategy is crucial for several reasons. Short-term government bonds offer stable returns while minimizing interest rate risk. For stablecoin issuers, this means LUIXX functions as an ideal reserve backing mechanism that achieves both objectives: earning consistent returns on reserves while keeping the capital base safe and liquid.

As stablecoins deepen their integration into payment systems and settlement chains, the need for regulated reserve instruments grows. LUIXX now positions itself as that precise instrument, backed by U.S. government debt with universal recognition.

DIGXX: On-chain ownership for institutional efficiency

The DIGXX fund—designated as Western Asset Institutional Treasury Reserves Fund—follows a different trajectory. This fund has issued a new Digital Institutional Shares class, specifically designed for distribution via blockchain platforms.

The practical implication is significant: approved intermediaries can now register and transfer fund ownership rights directly on the blockchain. This opens three advantages: accelerated settlement (no traditional clearing delays), 24/7 transaction hours (no exchange trading hours), and seamless integration with digital asset platforms. For institutional investors, this means that participation in money market funds does not interrupt their digital workflow.

The DIGXX fund itself remains registered through traditional channels with the SEC and operates under standard money market rules. The blockchain shares class is thus an addition, not a replacement, for existing structures.

Franklin Templeton accelerates its digital transformation

These two steps align with a broader pattern of Franklin Templeton initiatives. Since November 2025, the company has rolled out a tokenized money market fund in Hong Kong. That same month, it also expanded its Benji Technology Platform to the Canton Network, enabling further blockchain integration.

“Traditional funds are now going on-chain; rather than oppose this trend, we focus on making them more accessible and relevant,” said Roger Bayston, Head of Digital Assets at Franklin Templeton. This philosophy reflects how established financial institutions adopt innovation as a defense mechanism against new market entrants.

The combination of LUIXX’s yield-oriented reserve strategy and DIGXX’s technical efficiency positions Franklin Templeton as an institutional bridge—it combines traditional asset management with the operational changes made possible by blockchain technology.