How Does The Bybit Collateral Program Work?
Franklin Templeton is expanding its off-exchange collateral program to Bybit, allowing eligible investors to use shares in its tokenized money market funds to obtain trading liquidity without transferring the underlying assets onto the crypto exchange.
The eligible shares represent about $686 million in net assets. Investors can pledge them through ByCustody and receive USDT or USDC trading credit on Bybit while continuing to earn yield from the underlying money market holdings.
The structure separates custody from trading. The tokenized fund shares remain with ByCustody, while their collateral value is mirrored inside Bybit’s trading environment. That allows the same capital to generate investment income while supporting crypto trading activity.
Franklin Templeton has already applied a similar model elsewhere. Earlier this year, the asset manager extended its tokenized money market funds into an off-exchange collateral program with Binance, while it also supports collateral arrangements involving OKX.
For institutional traders, the model addresses a recurring problem in crypto markets: capital posted directly to an exchange typically stops earning the return available from cash-management assets and also creates direct exchange counterparty exposure.
Why Are Yield-Bearing Assets Becoming Trading Collateral?
The economic attraction is straightforward. Rather than keeping cash or stablecoins idle as margin, investors can hold a regulated money market product that earns yield and use its value to support trading positions.
Shares offered through Franklin Templeton’s Benji Technology Platform currently carry an annualized yield of about 3.7%, based on the latest seven-day rate. Benji provides blockchain-integrated recordkeeping and transfer agency infrastructure for the asset manager’s tokenized products.
The model is part of a larger effort to turn tokenized Treasuries and money market funds from passive onchain investments into working financial infrastructure. BENJI, BlackRock’s BUIDL and other tokenized Treasury products have increasingly been integrated into collateral and liquidity systems rather than being held solely as yield-generating investments.
“So now I’m able to really look across the top exchanges and be able as an investor to use my collateral more optimally while earning yield on it,” Sandy Kaul, Franklin Templeton’s head of digital assets and innovation, said.
“That to me is a critical unlock to really allow the ecosystem to grow. It’s also a wonderful opportunity for us as an asset manager to be designing products specifically for this wallet-based investing channel.”
Investor Takeaway
The bigger story is not simply another tokenized fund integration. Money market shares are beginning to function as reusable trading collateral, letting institutions combine yield, custody separation and market liquidity instead of choosing between them.
Why Keep The Assets Off-Exchange?
Off-exchange collateral has become more important to institutional crypto trading because it reduces the amount of capital that must sit directly with a trading venue.
Bybit has already been developing that infrastructure. In July, the exchange introduced a bank triparty service that lets institutions borrow against cash or U.S. Treasury collateral held with independent banking partners.
The Franklin Templeton arrangement extends the idea to tokenized money market funds. Instead of moving the asset to Bybit, the investor pledges it through a separate custody layer and receives trading capacity based on its value.
This does not eliminate risk. Collateral values, custody arrangements, borrowing terms and liquidation mechanics still matter. But it changes where the underlying asset sits and allows institutions to preserve ownership of an income-producing instrument while using the resulting credit inside a crypto trading account.
Is Tokenized Collateral Becoming A New Exchange Standard?
Franklin Templeton is not alone in building this market. Eligible institutional and professional users on Crypto.com and Deribit can use BlackRock’s BUIDL tokenized fund as collateral, including for derivatives positions. Other exchanges and custodians are developing comparable arrangements around tokenized Treasuries and money market products.
The competition is increasingly about capital efficiency. Exchanges want institutional traders to deploy more liquidity without requiring them to abandon the custody and yield standards they use in traditional finance. Asset managers, meanwhile, gain a new distribution channel for funds that can circulate through digital wallets and trading infrastructure.
For Franklin Templeton, expanding from Binance and OKX to Bybit widens the number of venues where its tokenized funds can perform two jobs at once: generating money market income and supporting trading activity.
If that model continues spreading, the role of tokenized funds could move well beyond simply putting traditional assets on a blockchain. They could become part of the margin infrastructure connecting asset managers, custodians and crypto exchanges, with yield-bearing securities increasingly competing with stablecoins and cash as the collateral institutions use to trade.
