The SEC's Division of Investment Management issued a no-action letter on August 12, 2026, permitting Franklin Templeton's registered mutual funds and ETFs to hold shares of its Franklin OnChain U.S. Government Money Fund (FOBXX, ticker BENJI) using blockchain-based custody — without meeting tradi...
"In 2021, BENJI was the first of its kind, and five years later, it continues to set the standard for how this industry moves capital, delivers yield, and operates in-market." — Sandy Kaul, Head of Digital Assets and Innovation, Franklin Templeton
The SEC's Division of Investment Management issued a no-action letter on August 12, 2026, permitting Franklin Templeton's registered mutual funds and ETFs to hold shares of its Franklin OnChain U.S. Government Money Fund (FOBXX, ticker BENJI) using blockchain-based custody — without meeting traditional physical-vault requirements under Rule 17f-2. The letter carves blockchain-native custody out of the Investment Company Act of 1940's physical-certificate framework for the first time.
FOBXX manages approximately $717 million (early August 2026) after growing from $594 million in January to over $2.5 billion in total BENJI suite AUM by July 2026. The fund operates across seven public blockchains — Stellar, Ethereum, Polygon, Avalanche, Arbitrum, Solana, and Base — making it the most widely distributed tokenized government money fund. The SEC's decision establishes a publicly available template on SEC.gov that, according to Bloomberg Intelligence analyst James Seyffart, makes it "structurally difficult for regulators to deny similar requests from competitors like BlackRock or Vanguard."
The ruling arrives as the tokenized Treasury market exceeds $15 billion in total AUM across all issuers, up from $8.9 billion at the start of 2026. BlackRock's BUIDL leads at $2.5 billion, Ondo Finance products hold approximately $3 billion combined, and FOBXX/BENJI sits third. The SEC's decision does not create a broad exemption — it applies solely to Franklin Templeton's specific facts — but the precedent's gravitational pull on future filings is considerable.
The SEC's Division of Investment Management told Franklin Templeton it would not recommend enforcement action if the firm's registered funds hold FOBXX shares using blockchain-based custody arrangements that do not fully satisfy Rule 17f-2 of the Investment Company Act of 1940. Rule 17f-2 was written for physical securities — paper certificates stored in bank vaults. Blockchain-native assets do not fit that framework.
Specifically, the letter exempts Franklin from paragraphs (b), (e), and (f) of Rule 17f-2, which govern physical examination, vault access, and certificate-counting requirements. The fund continues to operate under Rule 2a-7, the standard framework for government money market funds.
The SEC staff based its analysis partly on a 1992 no-action letter involving Franklin Investors Securities Trust, which addressed an affiliated transfer agent maintaining fund shares in book-entry form rather than physical certificates. The 2026 letter extends that logic to blockchain-recorded ownership — a conceptual leap 34 years in the making.
Critically, the SEC emphasized this is a staff position, not a formal rule or legal approval. It applies exclusively to Franklin Templeton's described arrangements. Other asset managers seeking similar relief must file their own requests.
Franklin Templeton's structure combines conventional book-entry records with blockchain technology. Franklin Templeton Investor Services LLC (FTIS), an affiliated transfer agent, serves as the custodian. FTIS maintains ownership records through an integrated system linking two layers:
Layer 1 — Internal databases containing shareholder information, transaction records, and administrative data in the traditional transfer-agent format.
Layer 2 — Blockchain records on the Stellar network tracking purchases, redemptions, distributions, and net asset values. Each investing fund receives a dedicated blockchain wallet. FTIS retains sole control of all private keys.
The arrangement mirrors historical book-entry systems that eliminated paper certificates for securities in the 1970s and 1980s. The SEC drew this analogy explicitly: blockchain ownership records serve the same function as DTC's book-entry system, with the transfer agent replacing the central securities depository.
The operational advantage is speed. The OnChain Fund calculates net asset value hourly rather than once daily, enabling intraday trading and faster settlement for cash management and securities-lending collateral. Peer-to-peer transfers between blockchain addresses are possible — $211 million in cumulative P2P volume had been processed as of March 31, 2026.
The SEC imposed specific conditions on the arrangement:
These conditions establish a compliance framework that future applicants will need to match or exceed.
FOBXX launched in April 2021 as the first U.S.-registered mutual fund to use a public blockchain as its primary ownership record. At the time, tokenized funds were a concept; FOBXX was the product.
AUM trajectory in 2026:
That represents over 100% year-to-date growth for a product investing in U.S. government securities — the least volatile asset class available. The growth is distribution-driven, not yield-driven.
The fund expanded from its original Stellar deployment to seven chains: Ethereum, Polygon, Avalanche, Arbitrum, Solana, Base, and Stellar. Approximately $1.5 billion — 61.7% of total BENJI value — sits on BNB Chain as of mid-July 2026, according to OurCryptoTalk data.
Investor count increased 140% from April 2024 to March 2026. Franklin Templeton added distribution partnerships with DigiFT (May 2026) for Asian investor access, MoonPay Trade (June 2026) for direct stablecoin-to-BENJI swaps, and Tradeweb's Canton Network (July 1, 2026) for on-chain Treasury transactions.
Franklin Templeton's pending acquisition of 250 Digital will use BENJI tokens as partial acquisition consideration — an early instance of corporate M&A settlement via tokenized fund shares.
FOBXX sits within Franklin Templeton's $1.74 trillion total AUM. BENJI represents approximately 0.14% of that figure.
The tokenized Treasury market grew from $8.9 billion on January 1, 2026, to over $15 billion by Q2 2026. Three issuers control the majority:
| Product | Issuer | AUM (Mid-2026) | Chains | |---------|--------|-----------------|--------| | BUIDL | BlackRock | ~$2.5B | 6 chains | | OUSG + USDY | Ondo Finance | ~$3.0B combined | Multiple | | FOBXX/BENJI | Franklin Templeton | ~$2.5B suite | 7+ chains | | Others | Various | ~$7.0B+ | Various |
BlackRock's BUIDL filed with the SEC in May 2026 for two new tokenized funds plus on-chain shares for a $7 billion money-market fund. BlackRock's CFO stated during the Q2 2026 earnings call that the firm wants to be "the stablecoin reserve manager of choice," already managing $60 billion of reserves for Circle.
The SEC's no-action letter for FOBXX gives Franklin Templeton a structural advantage: its registered funds can now use BENJI for cash management internally. BlackRock and others would need their own no-action relief to replicate this. The template is public, which lowers the barrier, but each filing requires firm-specific review.
The broader tokenized real-world asset (RWA) category reached $30 billion by mid-2026, with Treasuries comprising roughly half.
What it opens:
What it does not open:
A December 2025 no-action letter to DTCC for tokenization services provides a separate but parallel track. That letter permits DTC to operate tokenization services involving certain permissionless blockchains on a trial basis. Together, the two letters sketch an emerging regulatory architecture: issuers can tokenize fund shares (Franklin), and market infrastructure can process tokenized securities (DTCC).
The economic value distribution in tokenized fund structures differs materially from traditional fund operations. In the FOBXX model:
The net effect concentrates economic value at the asset manager level while reducing intermediary extraction. Traditional custodians, transfer agents outside the issuer's corporate family, and settlement infrastructure providers lose fee revenue. This pattern is consistent with broader tokenization economics: blockchain infrastructure replaces layers of intermediation, and the economic benefit accrues primarily to the issuer and the end investor.
The SEC's no-action letter to Franklin Templeton is procedurally modest — a staff position limited to one firm's specific facts. Its practical significance is larger. For the first time, a U.S. regulator has accommodated blockchain-based custody within the Investment Company Act framework, acknowledging that on-chain records can serve the same function as the book-entry systems that replaced paper certificates decades ago.
The letter does not herald wholesale deregulation of tokenized securities. It does not create a universal exemption. But it establishes a visible, replicable path. The template sits on SEC.gov. BlackRock, Vanguard, and every other asset manager with tokenization ambitions can see exactly what was filed, what conditions were imposed, and what was accepted. In regulatory terms, that is the precedent that matters — not the legal scope of the letter, but the operational blueprint it provides.
The tokenized Treasury market's growth from $8.9 billion to $15 billion in six months reflects institutional demand that now has a regulatory on-ramp. The question is no longer whether traditional funds can hold on-chain assets. The question is how fast the rest of the industry files.