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CONTRIBUTORS

David Alderman

Research Analyst,
Franklin Templeton Digital Assets

Alicia Tennell

Venture Analyst
Franklin Templeton Strategic Ventures

Introduction

This issue of Disruptive Technology Views takes a macro look at the blockchain ecosystem and the potential of a specific decentralized finance (DeFi) application.

The first article, “Understanding the public versus private blockchain debate,” compares the advantages of public blockchains versus the disadvantages of private blockchains, which carry most of the same issues as the current Web2 model.

  • There may be a transitional period where both private and public blockchains are utilized, but as limitations around how public blockchains operate are addressed, our view is that the need (and risks) of private blockchains will result in them being phased out. Over time, we expect public blockchains to become de facto utilities and be used across multiple industries. 

David Alderman, Research Analyst, Franklin Templeton Digital Assets

The second article, “The potential for DeFi to transform security lending markets,” outlines the benefits of decentralized finance over traditional finance, such as expanding today’s institutionally dominated world of securities lending into a broad-based ecosystem of asset lending open to all participants.

  • There are numerous potential benefits for financial institutions that use DeFi technology to support traditional security lending that could include enabling features to reduce operational costs, enhance capital market liquidity options and strengthen transaction transparency.

Alicia Tennell, Venture Analyst, Franklin Templeton Strategic Ventures

Read the complete PDF to learn more.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology, (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. All investments involve risks, including possible loss of principal.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton ("FT") has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments opinions and analyses in the material is at the sole discretion of the user.

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