SEC Clears Franklin Templeton Funds to Use OnChain BENJI System for Cash Management

The U.S. Securities and Exchange Commission (SEC) has issued a no-action letter to Franklin Templeton Investment Management, allowing the firm's registered investment funds to invest in its blockchain-based U.S. government money market fund, commonly known as BENJI.

Published on Wednesday, the letter removes certain custody-related regulatory obstacles, enabling Franklin Templeton's traditional registered funds to use the blockchain-based fund as a cash management vehicle without complying with specific provisions originally designed for physical securities.

According to Bloomberg ETF analyst James Seyffart, the decision allows Franklin Templeton's registered investment products, including mutual funds and exchange-traded funds (ETFs), to hold shares of the firm's blockchain-based money market fund despite it operating under a different recordkeeping structure than contemplated by the Investment Company Act of 1940.

SEC Grants Custody Relief

The SEC based its decision on Section 17(f) of the Investment Company Act of 1940 and Rule 17f-2, concluding that it would not recommend enforcement action if Franklin's registered funds hold shares of the blockchain-based fund under its proposed custody framework.

Traditionally, those provisions govern the custody of physical securities and impose specific safekeeping requirements.

In Franklin Templeton's case, however, the SEC recognized that the firm's blockchain-based operational model performs similar custody functions through a digital recordkeeping system rather than paper certificates or physical vaults.

BENJI Combines Blockchain and Traditional Recordkeeping

Franklin Templeton's Franklin OnChain U.S. Government Money Fund (FOBXX), marketed under the BENJI brand, uses a hybrid infrastructure that combines traditional transfer agent records with blockchain technology.

Ownership records are maintained on the Stellar blockchain while the company's transfer agent retains control of the official shareholder register, administrative functions, and the private cryptographic keys associated with investor wallets.

This structure allows the transfer agent to correct errors, restore records when necessary, and maintain oversight of shareholder ownership while benefiting from blockchain-based transaction processing.

Under the approved arrangement, Franklin Templeton Investor Services will create and manage Stellar blockchain wallets for the investment funds while maintaining custody of the associated private keys.

Because the system closely resembles traditional book-entry ownership rather than direct self-custody, the SEC determined that certain custody provisions intended for physical securities need not apply.

Faster Settlement and Operational Efficiency

The decision enables Franklin Templeton's traditional investment funds to benefit from several operational advantages offered by BENJI.

Among those benefits are faster transaction processing, more frequent pricing updates, and blockchain-based recordkeeping designed to improve operational efficiency without changing the underlying investment strategy.

BENJI primarily invests in U.S. government securities and seeks to maintain a stable $1.00 net asset value (NAV), functioning as a conventional government money market fund while using blockchain technology as its underlying operational infrastructure.

Building on Franklin Templeton's Tokenization Strategy

The SEC noted that its latest position builds upon a previous 1992 no-action letter issued to Franklin Templeton, adapting earlier regulatory interpretations to accommodate modern blockchain-based recordkeeping.

Franklin Templeton first launched BENJI on the Stellar network in 2021 before expanding support to additional blockchain networks, including Ethereum and Solana.

According to RWA.xyz, the fund currently manages approximately $726 million in assets, with the majority of those assets remaining on the Stellar network.

Expanding Blockchain's Role in Traditional Finance

The SEC's latest no-action letter extends beyond a single investment product and signals continued regulatory openness toward integrating blockchain infrastructure into conventional asset management.

Rather than treating blockchain-based funds as standalone digital asset products, the decision allows traditional investment vehicles to incorporate tokenized financial infrastructure into everyday portfolio and liquidity management.

If similar regulatory approaches continue, blockchain-based money market funds could increasingly become standard cash management tools for institutional investors, supported by faster settlement, greater operational transparency, and modernized recordkeeping. Such developments would further position blockchain as an operational layer for traditional financial markets rather than a technology limited to cryptocurrencies alone.