The U.S. Securities and Exchange Commission’s Division of Investment Management has made it easier for Franklin Templeton’s traditional funds to invest in its blockchain-based money market fund, FOBXX. The decision could expand the institutional use cases of BENJI tokens, which represent shares in the fund holding approximately $726 million in assets.
According to the SEC’s letter dated August 12, the agency’s staff will not recommend enforcement action under the custody arrangement proposed by Franklin Templeton. This means mutual funds and ETFs within the Franklin Templeton fund family can add FOBXX shares to their portfolios if they meet the specified conditions.
The decision provides an important example of how custody rules designed for physical securities can apply to fund shares represented on a blockchain. However, the letter does not amount to broad SEC approval for BENJI or introduce a new rule covering all investment companies.
Franklin Templeton funds can use BENJI
The Franklin OnChain U.S. Government Money Fund operates under the ticker FOBXX as a government money market fund. It invests primarily in U.S. government securities, cash and repurchase agreements fully collateralized by government assets.
Each BENJI token represents one share in FOBXX. According to Franklin Templeton’s product page, the fund aims to generate income while preserving capital and liquidity; it also seeks to maintain a stable share price of $1.
Under the arrangement submitted to the SEC, Franklin Templeton funds will be able to use FOBXX for cash management. Potential uses also include investing collateral received through securities lending transactions.
Features such as hourly net asset value calculations, intraday trading and faster transaction processing could offer operational advantages over conventional money market instruments.
Franklin Templeton will retain control of private keys
Franklin Templeton Investor Services maintains FOBXX’s official shareholder records. Its system combines the company’s traditional recordkeeping infrastructure with transaction data recorded on public blockchains.
Franklin Templeton will create a separate Stellar blockchain wallet for every fund investing in FOBXX. The company will also retain control of the private keys associated with these wallets.
The custody system will use multi-signature technology, multi-party computation and offline recovery capabilities. The transfer agent will be able to correct erroneous or unauthorized transactions, freeze or migrate wallet records and restore official ownership records when necessary.
SEC staff found the structure sufficiently similar to existing custody arrangements that use electronic book-entry records instead of physical certificates. The agency also required independent accountants to verify the funds’ holdings at least three times per fiscal year, with at least two of those checks conducted without prior notice.
What does the SEC decision mean for tokenization?
The decision strengthens the connection between Franklin Templeton’s traditional investment products and its tokenized money market fund. The company’s ETFs and mutual funds will be able to allocate part of their cash balances directly to a blockchain-based fund.
BENJI was previously added to an off-exchange collateral program for institutional investors on Binance. The tokenized fund shares have also been integrated with the institutional infrastructure of Kraken parent company Payward and MoonPay.
The latest SEC letter opens a different use case from BENJI’s role on crypto platforms. Franklin Templeton’s U.S.-registered traditional funds can now invest directly in FOBXX under the specified custody and oversight conditions.
Still, the SEC has not issued a general exemption covering all blockchain-based funds. The no-action letter applies only to the structure and commitments presented by Franklin Templeton; it does not constitute legal approval or a binding regulation.
