"Tokenization is going to do to ETFs what ETFs did to mutual funds," says Franklin Templeton's Sandy Kaul

Franklin Templeton, one of the largest asset managers in the world, is deepening its push into crypto-native finance. 

The firm announced a partnership with Ondo Finance, a leading tokenization provider, to tokenize a set of its exchange-traded funds (ETFs).

For Sandy Kaul, head of innovation at Franklin Templeton, the move is early proof of a much bigger shift coming to traditional markets.

Related: Goldman Sachs files with SEC to launch Bitcoin fund

Tokenization unlocks financial strategies for retail investors

By moving traditional assets onto a blockchain, Franklin Templeton and Ondo Finance are creating a new way for retail investors to interact with their holdings. 

Sandy Kaul believes this partnership is about more than just changing a digital format; it is about reinventing what an investment can do.

"I am super excited about what Ondo is doing in terms of inventing a new category of financial exposure," Kaul told TheStreet Roundtable. "These are instruments that allow you to have exposure to the economics of the underlying investments, but in a token that can act as a permissionless token, which gives you far more utility."

Tokenized ETFs are often "static" assets that investors simply buy and hold. However, tokenized versions offer a more dynamic experience where the investment itself can be used in other digital financial applications.

"Rather than just getting the return stream, you're also able now to use that return stream as its own asset," Kaul said. "I could put that return stream into a lending protocol. I could put that return stream up as collateral. This is really starting to add a whole new layer of utility to my ETF holding that isn't possible in today's ETF holdings."

Are ETFs dying?

Over the past 15 years, roughly since the 2008 global financial crisis, trillions of dollars have moved out of mutual funds and into ETFs.

Kaul believes the same kind of migration is about to play out again.

"Tokenization is going to do to ETFs what ETFs did to mutual funds," Kaul said. 

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In other words: a structural, generational migration of capital.

"In two to three years, every security that sits inside of an ETF is likely to be tokenized," she said.

The vision goes beyond simple wrappers. Tokenized ETFs could let investors hold the token wrapper, or "burn" it to take direct possession of the underlying tokenized securities, mixing and matching holdings based on their own strategy.

It's a shift from investors adapting to standardized products, to products adapting to individual investors.

If Kaul is right, the ETF industry's biggest disruptor may not be another ETF. It may be a token.

Related: Ondo exec explains how perpetual futures stay in line with spot prices