Bybit and Franklin Templeton Let Institutions Pledge Tokenized Fund Shares for Trading Credit

Tokenized Money-Market Shares Enter Institutional Collateral Workflows

On September 28, Bybit announced a strategic collaboration with Franklin Templeton that gives eligible institutional clients a new way to access trading credit on the exchange – without moving their investment assets onto it. Under the arrangement, institutions can pledge Benji-issued fund shares through ByCustody as off-exchange collateral, receiving credit lines denominated in USDT or USDC in return. The underlying fund shares are never converted into stablecoins; they remain in custody outside Bybit while supporting the credit facility.

The structure is notable because it places a regulated, tokenized investment product directly into the collateral mechanics of a major crypto exchange – a pairing that has been structurally uncommon, given how custody, yield, and trading access have historically required separate allocations of capital. Bybit’s announcement states that the pledged assets continue generating yield while serving as collateral, which separates this arrangement from conventional setups where collateral sits idle.

How the Mechanics Actually Work

The credit facility operates through ByCustody, Bybit’s custody layer. Eligible institutions pledge their Benji fund shares there, and in return receive USDT or USDC credit lines for trading on the exchange. The fund shares themselves do not move onto Bybit’s platform. Custody of the underlying assets remains off-exchange throughout.

That off-exchange custody arrangement is the structural backbone of the deal. It means the institution retains a position in the Franklin OnChain U.S. Government Money Fund – still earning whatever yield the fund produces – while simultaneously using those same shares as the basis for collateral-backed trading credit. The collateral and the credit line serve distinct functions operating in parallel, not sequentially.

Franklin Templeton’s Benji Technology Platform provides the fund infrastructure behind this. The platform handles blockchain-based recordkeeping and transfer-agency functions for tokenized investment products. The specific product involved is the Franklin OnChain U.S. Government Money Fund, represented on-chain by the BENJI token. Franklin Templeton states the fund launched in 2021 as the first U.S.-registered mutual fund to use a public blockchain as its official system of record – a regulatory milestone that makes its tokenized shares a relatively well-defined asset class compared to most crypto collateral.

What neither Bybit’s announcement nor the information accompanying the collaboration discloses is the credit extension terms, the size of available credit lines, or how Benji fund share valuations are determined for collateral purposes. Those parameters – the haircuts applied, the margin ratios, the conditions under which credit is adjusted or called – are not part of the public announcement. For institutional clients evaluating the arrangement, those terms would be negotiated or disclosed separately.

The Regulatory and Custody Distinction That Makes This Relevant

From a legal and structural standpoint, the separation between custody and trading access is the detail that matters most here. Institutions operating under regulatory frameworks that govern asset custody – particularly those subject to rules requiring segregation of client assets from exchange exposure – have historically faced friction when deploying investment holdings as trading collateral. Moving assets onto an exchange to support trading creates counterparty exposure to that exchange.

By keeping the Benji shares in custody off Bybit while using them to back a credit line, the arrangement attempts to preserve that separation. The announcement does not claim the structure eliminates counterparty risk or that collateral values are fixed – and the absence of disclosed valuation parameters means institutions would need to understand exactly how ByCustody holds those pledged shares and what rights apply in a liquidation or default scenario. The collaboration is limited to eligible institutional clients, which suggests some form of qualification threshold exists, though what that threshold is has not been publicly specified.

Expanding the Functional Role of Tokenized Fund Units

The Bybit-Franklin Templeton arrangement effectively assigns tokenized fund shares a second function beyond simple investment holding. A Benji token that previously sat as a yield-bearing position in an institution’s portfolio can now also serve as collateral infrastructure for active trading on a crypto exchange. That dual-use capacity changes how portfolio managers and treasury teams might account for the position – it becomes simultaneously a fixed-income-adjacent instrument and a trading-credit enabler.

That expansion of use cases follows a pattern visible across the tokenized asset market broadly: issuers and platforms are working to make tokenized securities more functional within trading ecosystems rather than letting them remain isolated as blockchain-native equivalents of traditional investment products. Franklin Templeton’s Benji platform, having built the compliance and recordkeeping infrastructure since 2021, is positioned to extend into these adjacent functions precisely because the underlying product already has regulatory standing as a U.S.-registered mutual fund. The BENJI token isn’t a synthetic instrument – it represents actual fund shares with an established legal wrapper, which changes the risk profile institutions assign to pledging it.

The service is currently restricted to eligible institutional clients, and the public announcement stops short of specifying geography, minimum thresholds, or the legal jurisdictions in which the credit facility operates. What remains open is whether the terms Bybit extends on those USDT and USDC credit lines account for the fund’s own redemption mechanics – the Franklin OnChain U.S. Government Money Fund is a money-market vehicle, and any mismatch between redemption timelines and margin call windows would be a practical concern that the announced structure leaves unaddressed.

For institutional desks already holding Benji shares and trading on Bybit, the question is less about the concept and more about what the collateral agreement actually says when things move against them.