I’ve been watching tokenized funds for a while now, and every so often a regulatory move lands that feels bigger than the headlines first suggest. This week the SEC’s investment management division handed Franklin Templeton a no-action letter that lets its own registered mutual funds and ETFs hold shares of the firm’s blockchain-based OnChain U.S. Government Money Fund. The fund trades under the ticker FOBXX and is better known in crypto circles by the BENJI token that represents those shares. On paper it looks like a narrow custody clarification. In practice it opens a clean path for traditional fund vehicles to park cash inside a product that already lives on public blockchains.
Why This No-Action Letter Matters Right Now
Custody rules under the Investment Company Act of 1940 were written for a world of paper certificates and steel vaults. Rule 17f-2 and Section 17(f) still carry language that assumes physical possession. Franklin’s structure does something different. It keeps the official shareholder record with the affiliated transfer agent while simultaneously recording transactions on the Stellar network and several other chains. Private keys never leave Franklin’s control. The transfer agent can still correct errors or restore records if the blockchain data ever needs cleanup. That hybrid approach was enough for the SEC staff to say they would not recommend enforcement action.
James Seyffart, who tracks ETFs closely, put it plainly: the letter effectively lets Franklin’s conventional products hold the OnChain fund even though the arrangement does not tick every traditional custody box. I’ve found that kind of practical flexibility often arrives years before broader rulemaking catches up. In this case the precedent the staff cited goes all the way back to a 1992 no-action letter that already treated book-entry systems as legitimate custody. The agency simply extended that logic to a setup that also uses blockchain transaction data.
How the Custody Arrangement Actually Works
Franklin Templeton Investor Services creates dedicated blockchain wallets for any registered fund that wants to buy FOBXX. Those wallets stay under the firm’s control. The affiliated transfer agent continues to maintain the official books and retains the ability to override or correct blockchain entries when necessary. Ownership is therefore dual-layered: the transfer agent’s internal records remain the legal source of truth, while the blockchain provides an additional, near-real-time transaction log.
This is not a pure “blockchain is the only record” model. It is closer to the book-entry systems that mutual funds have used for decades, only now the secondary ledger sits on public chains. The SEC staff found the structure sufficiently similar to arrangements they had already blessed. That similarity was the key that unlocked the relief.
What BENJI Actually Holds
FOBXX is a government money market fund. At least 99.5 percent of its assets sit in U.S. government securities, cash, and repurchase agreements. The goal is the classic stable one-dollar share price. The fund launched on Stellar in 2021 and has since expanded to Solana, Ethereum, Avalanche, Arbitrum, Base, Polygon, and Aptos. Stellar still holds the largest slice of on-chain assets. Total assets under management recently hovered around $726 million according to the data platforms that track real-world assets.
Each BENJI token represents one share. Peer-to-peer transfers between eligible wallets have been possible on Stellar and Polygon since early 2024. That feature turned the fund into something more than a simple cash vehicle; it became a transferable on-chain instrument that institutions can move without routing every transaction through a traditional intermediary.
Institutional Uses Already in Motion
Franklin has spent the last couple of years quietly expanding how institutions can put BENJI to work. Earlier this year the firm and Binance launched an off-exchange collateral program. Eligible clients can pledge tokenized money-market shares as collateral while the underlying assets remain in regulated custody. The value of those shares can then be used inside Binance’s trading environment without the shares themselves ever landing on the exchange.
A separate partnership with Payward, the parent of a major crypto exchange, positioned BENJI for collateral and cash-management roles. Another integration with MoonPay Trade lets institutional clients swap stablecoins such as USDC or USDT for BENJI shares through an on-chain execution layer that reaches more than two hundred networks. Treasury teams, portfolio rebalancers, and liquidity desks now have a regulated money-market product that can move at blockchain speed when needed.
The new SEC letter addresses a different use case entirely: registered Franklin funds investing directly into FOBXX. That is the piece that was missing. Until this week, the firm’s own mutual funds and ETFs faced technical hurdles under the 1940 Act custody rules. Those hurdles are now cleared for this specific structure.
Why the Timing Feels Significant
Tokenized treasury and money-market products have grown quickly, yet most of that growth has happened outside the traditional registered-fund universe. Mutual funds and ETFs still manage trillions of dollars of cash that must stay inside regulated vehicles. Giving those vehicles a clean path into a blockchain-native money-market fund is a practical bridge between two systems that have largely operated in parallel.
I’ve noticed that once one large asset manager receives this kind of clarity, others tend to explore similar structures. The letter is specific to Franklin’s arrangement, so it is not a blanket green light. Still, the reasoning the staff used—recognizing hybrid book-entry-plus-blockchain systems as close enough to existing precedent—could be useful for other firms designing comparable products.
Essentially, it opens the door for Franklin’s registered funds to hold its OnChain fund despite not technically satisfying 1940 Act custody rules.
That observation captures the practical effect cleanly. The door is open for one firm’s products. Whether the industry walks through it in volume remains to be seen, but the regulatory path now exists.
Technical and Operational Details Worth Noting
The transfer agent retains full administrative control. If a blockchain record ever needs correction, the agent can make the change and restore the official shareholder file. Private keys for the wallets that registered funds use stay with Franklin Templeton Investor Services. No external custodian or third-party key holder is required under the approved structure. That internal control was clearly important to the staff’s comfort level.
The fund itself continues to operate under the same investment guidelines it has always followed. Blockchain networks handle settlement and transfer; the underlying portfolio stays heavily concentrated in government securities. From a risk perspective, the product still looks like a conventional government money-market fund with an additional on-chain distribution layer.
- Official shareholder record maintained by the affiliated transfer agent
- Blockchain wallets created and controlled by Franklin Templeton Investor Services
- Private keys never leave firm control
- Ability to correct or restore blockchain-related errors remains with the transfer agent
- Hybrid model treated as sufficiently similar to prior book-entry no-action relief
Those five points summarize the operational core that made the relief possible. None of them require the blockchain to be the sole source of truth. That distinction matters. It keeps the product inside the existing regulatory perimeter while still delivering the speed and transferability that on-chain infrastructure provides.
Broader Context of Franklin’s Digital Asset Push
Franklin Templeton has been building digital-asset capabilities for several years. The firm completed the acquisition of crypto asset manager 250 Digital and formed a dedicated Franklin Crypto unit. Tokenized assets under its umbrella have grown substantially, moving from roughly three-quarters of a billion dollars a year earlier to more than two and a half billion according to industry trackers. FOBXX itself is only one piece of that expansion, but it is the piece that has drawn the most regulatory attention because it is a fully registered 1940 Act fund.
The multi-chain deployment strategy is also notable. Starting on Stellar and later adding Solana, Ethereum-compatible networks, and others shows a deliberate effort to meet institutional users where they already operate. Different chains serve different operational preferences; the fund simply makes its shares available across those environments.
In my view the most interesting development is not any single integration but the gradual accumulation of use cases. Collateral programs, stablecoin conversion rails, peer-to-peer transfers, and now direct investment by registered funds form a fuller picture. Each piece reduces friction for a different type of institutional participant.
What Comes Next for Tokenized Cash Products
Regulators remain cautious about pure on-chain record-keeping for registered investment companies. The Franklin letter reinforces that hybrid models—traditional books plus blockchain logs—are currently the more acceptable path. Firms that want similar relief will likely need to demonstrate comparable levels of internal control and the ability to override blockchain data when necessary.
For portfolio managers inside Franklin’s own complex, the practical benefit is straightforward. Cash that used to sit in conventional money-market funds or overnight repo can now sit inside a product that can be transferred on-chain if the need arises. That optionality may prove useful during periods of market stress or when collateral movements need to happen quickly.
Outside Franklin, the letter will be read carefully by other asset managers exploring tokenized money-market or treasury products. The specific facts of the arrangement matter, yet the underlying logic—that a well-controlled hybrid system can satisfy custody expectations—offers a template others may adapt.
Risk Considerations That Still Apply
Nothing in the no-action letter changes the fundamental risks of a money-market fund. Interest-rate moves, liquidity conditions in the government securities market, and operational resilience remain the primary concerns. The blockchain layer adds a new operational surface, even if private keys stay inside the firm. Cybersecurity, key-management procedures, and the reliability of the underlying networks are now part of the risk conversation.
Investors in the registered funds that may soon hold BENJI should understand they are gaining exposure to a product whose settlement rails differ from traditional money-market funds. The underlying portfolio composition, however, stays conventional. That combination—familiar assets with novel transfer mechanisms—is precisely what the SEC staff appears to have accepted.
I keep coming back to the dual-record design. By refusing to treat the blockchain as the sole source of truth, Franklin preserved the regulatory comfort that decades of book-entry practice have built. At the same time the firm still captures the operational advantages of public-chain settlement. That balance is delicate, and the no-action letter essentially blesses the current version of it.
Looking at the Bigger Picture
Tokenization of traditional financial products has moved from experiment to early infrastructure. Money-market funds are a natural starting point because they are already highly standardized, short-duration, and focused on capital preservation. Once the custody and transfer questions are resolved for one large player, the remaining barriers become more operational than legal.
Perhaps the most interesting aspect is how quietly this particular piece of relief arrived. There was no major rulemaking, no public consultation period, just a staff letter addressing a specific set of facts. That is how a lot of market infrastructure actually evolves—one practical accommodation at a time. The firms that pay attention to these letters often gain an early operational edge.
Franklin now has a clear path for its own registered vehicles to use BENJI as a cash-management tool. Other managers will study the structure. Regulators will continue to watch how hybrid systems perform under real-world conditions. And the broader market will keep testing whether tokenized cash can move as smoothly between traditional and on-chain environments as the technology promises.
The letter does not rewrite the Investment Company Act. It simply acknowledges that a carefully designed combination of old and new record-keeping can meet the spirit of the existing rules. In a market that is still figuring out how digital assets fit inside legacy frameworks, that kind of pragmatic acknowledgment is worth noting. The real test will be whether other firms can replicate the same level of control and transparency that made the staff comfortable this time.
For now the door is open for Franklin’s mutual funds and ETFs. How widely that door gets used, and how quickly similar arrangements appear elsewhere, will tell us more about the pace of institutional adoption than any single product launch. The infrastructure is in place. The regulatory path, at least for this specific model, is clearer than it was last week. The rest will depend on how portfolio managers and treasurers decide to use the new flexibility.
One final observation from watching these developments: regulatory clarity rarely arrives in dramatic packages. More often it shows up in the form of a staff letter that answers a narrow question and, in doing so, quietly expands the set of workable structures. This week’s letter is one of those moments. It does not solve every custody question surrounding tokenized funds, yet it removes a concrete obstacle for one of the largest asset managers already active in the space. That is how practical progress usually looks.
The combination of traditional transfer-agent control and blockchain transaction records may become a template others try to follow. Whether it does will depend on how cleanly the model scales and how consistently the operational safeguards hold up. For the moment, registered funds inside the Franklin complex have a new cash-management option that sits at the intersection of regulated money-market practice and on-chain transferability. That intersection just became a little more navigable.
