The SEC Division of Investment Management issued a no-action letter on August 12, 2026, permitting Franklin Templeton's registered mutual funds and exchange-traded funds to hold shares of the Franklin OnChain U.S. Government Money Fund — a blockchain-native money market fund represented by the BE...
"This is the first time the SEC has said a digitally native product can be used in traditional financial products." — Sandy Kaul, Head of Digital Assets and Innovation, Franklin Templeton
The SEC Division of Investment Management issued a no-action letter on August 12, 2026, permitting Franklin Templeton's registered mutual funds and exchange-traded funds to hold shares of the Franklin OnChain U.S. Government Money Fund — a blockchain-native money market fund represented by the BENJI token on the Stellar network. The relief waives three physical-custody provisions under Rule 17f-2 of the Investment Company Act of 1940, rules written in 1941 for paper certificates stored in vaults.
The decision marks the first SEC staff position explicitly allowing a tokenized, blockchain-recorded security to sit inside conventional fund wrappers. Franklin Templeton plans to begin deploying BENJI as cash-management and securities-lending collateral across its fund complex in Q4 2026, pending individual fund board approvals. The BENJI suite reported $1.98 billion in assets under management as of April 29, 2026, and has since surpassed $2.44 billion. The broader tokenized treasury market stood at approximately $26–28 billion by July 2026, according to rwa.xyz data.
This no-action letter does not constitute rulemaking. It applies narrowly to Franklin Templeton's specific custody arrangement. But its regulatory signal — that blockchain-integrated recordkeeping can be treated as functionally equivalent to traditional book-entry systems — carries implications for every asset manager with tokenization ambitions.
On August 12, 2026, the SEC's Division of Investment Management published a no-action letter stating it would not recommend enforcement action if Franklin Templeton's registered funds invest in the Franklin OnChain U.S. Government Money Fund (FOBXX), a government money market fund whose shares exist as BENJI tokens on a public blockchain.
The letter addresses Section 17(f) of the Investment Company Act and Rule 17f-2, specifically paragraphs (b), (e), and (f). These provisions govern how a fund physically holds its own assets — requiring vault storage, notation of deposits and withdrawals, and physical examination by independent accountants.
Franklin Templeton Investor Services LLC (FTIS), the fund complex's affiliated transfer agent, will serve as custodian. The SEC staff accepted that FTIS's "unilateral control over the official ownership record" — maintained through multiparty computation and multisignature techniques — provides functional equivalence to a traditional book-entry system.
The relief builds on a 1992 no-action letter that addressed affiliated book-entry custody for Franklin Templeton's conventional funds. The 2026 letter extends that precedent to blockchain-integrated recordkeeping.
Christopher Perkins, head of Franklin Crypto, stated that "the utility of tokenized assets is essential" for 24/7 market infrastructure, according to Markets Media.
Rule 17f-2 was adopted in 1941 to protect fund shareholders from misappropriation of physical securities. Its core requirements include:
These provisions assume a world of paper certificates. When fund shares exist as cryptographic tokens on a distributed ledger, there is nothing to put in a vault, nothing to physically examine, and no paper trail to notate.
Until August 12, every tokenized fund operating inside the U.S. regulatory perimeter faced a structural compliance gap: the custody rules did not contemplate their existence. Fund sponsors either avoided holding tokenized instruments in registered vehicles or structured workarounds that limited scalability.
The SEC staff's position — that blockchain recordkeeping can substitute for physical custody under specified conditions — closes a gap that has constrained institutional adoption since Franklin Templeton launched FOBXX in 2021.
The no-action relief is conditional on 12 operational safeguards, as detailed in the Faegre Drinker Biddle & Reath analysis of the letter:
The conditions are prescriptive. They require FTIS to hold all private keys unilaterally, retain the ability to freeze wallets, correct errors, and migrate records, and ensure that a compromised private key cannot alter the official ownership record.
According to the Faegre Drinker analysis, the SEC treated the arrangement as "functionally equivalent to a traditional book-entry system" — a characterization that may prove significant for future applicants.
Franklin Templeton launched the OnChain U.S. Government Money Fund in 2021 on the Stellar network. It was the first U.S.-registered money market fund to use a public blockchain as its official system of record.
| Metric | Value | |---|---| | AUM (April 29, 2026) | $1.98 billion (BENJI suite) | | AUM (July 2026, est.) | $2.44 billion | | Net assets (July 31, 2026) | $720.9 million (FOBXX) | | Seven-day net yield | 3.50% | | Supported blockchains | 8 (Stellar, Polygon, Arbitrum, Aptos, Avalanche, Base, Solana, Ethereum) | | Investor growth (Apr 2024–Mar 2026) | 140%+ |
The fund operates as a government money market fund under Rule 2a-7. It does not invest in cryptocurrencies. The blockchain serves solely as a recordkeeping layer for share ownership and transaction settlement.
Franklin Templeton's digital asset footprint extends beyond BENJI. In April 2026, the firm acquired 250 Digital, a CoinFund spinoff, to launch Franklin Crypto as an institutional digital assets division. Part of the acquisition consideration was reportedly paid in BENJI tokens — an early instance of tokenized fund shares used as M&A currency.
The tokenized real-world asset market reached approximately $33.5 billion by July 2026, according to rwa.xyz. Tokenized U.S. Treasury and cash-equivalent products account for $26–28 billion of that total — roughly 80% of all tokenized RWA value.
The market is concentrated among four products:
| Fund | Issuer | AUM (mid-2026) | |---|---|---| | USYC | Circle/Hashnote | ~$3.0 billion | | BUIDL | BlackRock/Securitize | ~$2.8 billion | | BENJI | Franklin Templeton | ~$2.44 billion | | OUSG | Ondo Finance | ~$670 million |
BlackRock's BUIDL, launched in March 2024 with Securitize as transfer agent, holds approximately 40% of the tokenized treasury market share at $2.9 billion and operates across seven chains. Ondo Finance's OUSG invests primarily through BUIDL, creating a layered dependency.
Tokenized T-bill fund AUM crossed $7 billion in early 2026, up from $850 million two years prior. The trajectory suggests the market roughly quadrupled in 18 months. However, neither BlackRock nor Ondo has received equivalent SEC no-action relief for cross-fund deployment of their tokenized products. Franklin Templeton's letter gives it a structural advantage for institutional distribution that competitors do not yet possess.
What it enables:
Franklin Templeton's conventional mutual funds and ETFs can now hold BENJI as a cash-management tool. Sandy Kaul, head of digital assets and innovation at Franklin Templeton, told Bloomberg the goal is to "manage cash more precisely, capture more yield and reduce the amount of liquidity they need to hold." The OnChain fund offers hourly net asset value calculations and intraday trading — capabilities unavailable in traditional money market structures with end-of-day NAV.
For Franklin's fund complex, the practical impact is operational efficiency: faster settlement, potentially lower costs, and continuous portfolio rebalancing during market hours.
What it does not enable:
The letter does not constitute rulemaking. It applies exclusively to Franklin Templeton's specific arrangement and should not be assumed to extend to other fund families without separate SEC guidance. The SEC staff statement is explicit: the letter "reflects a staff position on enforcement and does not constitute Commission approval or a legal conclusion."
Other asset managers — BlackRock, WisdomTree, Apollo, KKR — have launched tokenized fund products. None has received equivalent relief. Each would need its own no-action request, tailored to its specific custody architecture.
The broader regulatory framework for blockchain-based custody in registered fund operations remains undeveloped. The Faegre Drinker analysis noted that "the broader regulatory framework governing the adoption of blockchain-based technology in regulated fund operations remains to be developed."
The SEC's comfort with blockchain-based custody is advancing on a second front. On December 11, 2025, the SEC issued a no-action letter greenlighting a three-year DTCC pilot for tokenizing securities held at The Depository Trust Company.
The pilot, which began limited production trades in July 2026, covers Russell 1000 equities, major-index ETFs, and U.S. Treasuries. More than 50 firms participate, including BlackRock, Goldman Sachs, JPMorgan, Circle, and Ondo Finance. A full service launch is scheduled for October 2026.
The two tracks — Franklin Templeton's fund-level relief and DTCC's infrastructure-level pilot — are converging. If both proceed as planned, by Q4 2026 the U.S. will have tokenized securities operating at both the fund wrapper level and the central depository level simultaneously.
The total addressable market is substantial. Franklin Templeton manages over $1.5 trillion in assets globally. The DTCC settles the majority of U.S. securities transactions. Together, these initiatives represent a structural shift in how securities recordkeeping infrastructure operates — not a speculative experiment, but incremental adaptation of existing plumbing.
The SEC's no-action letter to Franklin Templeton is a narrow administrative action with broad structural implications. By treating blockchain-integrated recordkeeping as functionally equivalent to book-entry custody, the staff has provided the first explicit regulatory pathway for tokenized securities to enter conventional fund wrappers.
The economic logic is straightforward: hourly NAV calculations, intraday settlement, and reduced idle cash holdings represent measurable operational efficiencies. The competitive advantage is time-limited — other asset managers will likely seek equivalent relief — but for now, Franklin Templeton is the only firm with SEC staff comfort for this specific use case.
The tokenized treasury market has grown from $850 million to over $26 billion in two years. The question is no longer whether institutional capital will flow into tokenized instruments, but through what regulatory channels. The Franklin Templeton letter, combined with the DTCC pilot launching in October, suggests those channels are forming faster than most market participants anticipated.
Whether this amounts to a fundamental change in securities infrastructure or merely digital wallpaper on existing plumbing depends on what comes next: rulemaking, not just no-action letters.