What Did The SEC Approve?

The U.S. Securities and Exchange Commission has cleared a regulatory obstacle that prevented Franklin Templeton’s traditional registered funds from investing directly in its blockchain-based U.S. government money market fund for cash management.

The SEC’s Division of Investment Management issued a no-action letter Wednesday covering the Franklin OnChain U.S. Government Money Fund, known by the ticker FOBXX and commonly called BENJI. Under the arrangement, Franklin Templeton mutual funds, ETFs and other registered funds can hold shares of BENJI without satisfying certain custody requirements originally written for physical securities certificates and vaults.

The relief concerns Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940. Those rules govern how registered investment companies hold assets in their own custody, but their physical-certificate framework does not fit neatly with tokenized fund shares recorded through blockchain infrastructure.

The SEC said it would not recommend enforcement action if Franklin funds use BENJI under the structure described by the firm and comply with a series of safeguards. The decision does not broadly exempt tokenized funds from custody rules, but it gives Franklin a defined route for connecting conventional investment products with its onchain cash-management system.

How Does BENJI’s Blockchain Structure Work?

BENJI invests primarily in U.S. government securities and seeks to maintain a stable $1 share price. The fund launched on Stellar in 2021 and has since expanded to additional networks including Ethereum and Solana.

Its record-keeping system combines Franklin Templeton’s internal book-entry records with transaction information recorded on blockchain networks. Franklin Templeton Investor Services, the affiliated transfer agent, retains control of the official shareholder register and the private keys used for wallets associated with investing funds.

That control was central to the SEC’s decision. The transfer agent can correct errors, freeze accounts, migrate holdings or restore records if necessary, meaning the blockchain record does not operate independently of the regulated transfer-agent system.

The SEC compared the arrangement with earlier book-entry structures and cited a 1992 no-action letter involving Franklin in reaching its conclusion. Rather than requiring the tokenized shares to meet rules designed around physical certificates stored in vaults, regulators accepted a system in which the transfer agent retains administrative authority over the ownership record.

The relief is subject to 12 conditions. Among them, Franklin must maintain controls intended to prevent unauthorized instructions, while Franklin Templeton Investor Services must preserve the ability to administer and recover the tokenized records.

Investor Takeaway

The SEC decision reduces a practical barrier between tokenized money funds and traditional registered investment products. If similar structures receive regulatory acceptance, blockchain-based funds could increasingly compete for the cash-management assets currently held in conventional money market products.

Why Does The Decision Matter For Tokenized Funds?

The immediate benefit for Franklin Templeton is operational. Its registered funds can now place cash into BENJI while gaining access to features associated with the tokenized structure, including faster transaction processing and more frequent pricing updates, without restructuring their custody arrangements around physical-vault rules.

That creates a more direct link between traditional fund management and tokenized securities. Until now, much of the growth in real-world asset tokenization has been driven by crypto-native investors, institutional pilots and separately structured blockchain products. Allowing conventional registered funds to use an onchain money market fund internally could bring tokenization deeper into established asset-management workflows.

BENJI already has about $726 million in assets under management, with the largest portion recorded on Stellar. Franklin Templeton oversees roughly $2.5 billion of onchain assets across its tokenized products, making it one of the larger asset managers operating in the sector.

The regulatory treatment is also notable because the SEC did not require Franklin to abandon blockchain infrastructure to meet traditional custody standards. Instead, the agency focused on whether the transfer agent retained sufficient control over private keys, shareholder records and administrative functions.

Could The SEC Decision Extend Beyond Franklin Templeton?

The no-action letter applies to the specific Franklin Templeton structure and does not automatically change custody rules for every tokenized fund. Other asset managers would still need to show that their systems provide comparable safeguards or obtain their own regulatory relief.

Even so, the decision may provide a framework for firms developing tokenized money market products. A structure combining blockchain transaction records with a regulated transfer agent that retains control over ownership records could prove easier to fit within existing investment-company rules than fully decentralized custody models.

The result could increase competition in tokenized cash products, where asset managers are attempting to combine the liquidity and stability of government securities with blockchain settlement and programmable ownership records.

For Franklin Templeton, the approval also creates an internal source of potential demand. Rather than relying only on outside investors to expand BENJI, the firm can now use the fund as a cash-management vehicle across eligible registered products. That could help increase BENJI’s assets while testing tokenized infrastructure at a larger scale inside a traditional asset-management business.