The U.S. Securities and Exchange Commission’s Division of Investment Management issued a no-action letter on August 12, 2026, clearing Franklin Templeton’s traditional registered funds — including mutual funds and ETFs — to invest in its blockchain-based OnChain U.S. Government Money Fund without satisfying certain physical-vault custody requirements under the Investment Company Act of 1940.
The ruling arrives as institutional appetite for tokenized real-world assets accelerates globally. Franklin Templeton’s OnChain U.S. Government Money Fund — widely known by its app name, BENJI, and ticker FOBXX — launched on the Stellar blockchain in 2021 and has since expanded to Ethereum and Solana. According to RWA.xyz data, the fund holds approximately $726 million in assets under management, with the majority still residing on Stellar. The fund invests primarily in U.S. government securities and targets a stable $1 net asset value per share.
What the SEC Actually Permitted
At the center of the no-action letter are Section 17(f) and Rule 17f-2 of the Investment Company Act of 1940, provisions originally drafted to govern the physical custody of securities certificates and vault arrangements. The SEC’s Division of Investment Management concluded that Franklin Templeton’s blended onchain and off-chain record-keeping system was sufficiently analogous to established book-entry arrangements that the strict physical-custody provisions need not apply.
“Essentially, it opens the door for Franklin’s registered funds (mutual funds, ETFs, etc) to hold its OnChain fund despite not technically satisfying 1940 Act custody rules,” Bloomberg ETF analyst James Seyffart said on X.
The mechanics are specific. Franklin Templeton Investor Services, the firm’s affiliated transfer agent, will create and control blockchain wallets on the Stellar network on behalf of the investing funds and will retain the corresponding private keys. That same transfer agent maintains the official shareholder file, retains administrative authority, and holds the ability to correct errors or restore records in the event of a technical failure, according to the SEC letter. The hybrid architecture — combining internal book-entry records with an immutable transaction log on Stellar — was the technical feature that convinced the agency the arrangement met the spirit of existing custody rules.
The SEC’s letter explicitly cited a 1992 no-action letter, also involving Franklin Templeton, as precedent for its decision. That citation signals the agency is threading the regulatory needle carefully: the relief is framed as an incremental extension of established practice rather than a novel grant of blockchain-specific privileges, a posture that may be designed to limit the precedent’s immediate reach to similarly structured arrangements.
The invocation of a three-decade-old precedent to authorize a blockchain-native custody structure is more than procedural tidiness. It reflects a broader pattern in which U.S. regulators — under pressure to address the tokenization market without waiting for comprehensive rulemaking — are retrofitting existing frameworks to accommodate new technology rather than creating bespoke rules. That approach gives regulated institutions like Franklin Templeton a workable path forward today, but it also means the legal foundation for onchain fund structures remains interpretive rather than codified, a distinction that matters materially for institutions assessing counterparty and regulatory risk in their own tokenization programs. The SEC’s August 14 vote on formal crypto rulemaking looms as the next data point for whether the agency intends to replace these ad hoc letters with durable rules.
The practical consequence for Franklin Templeton’s fund family is significant. Traditional registered funds investing in BENJI will gain access to the operational characteristics that distinguish the onchain vehicle from conventional money market instruments: faster transaction settlement, more frequent intraday pricing updates, and programmable transfer functionality. Those features have long been cited by tokenization proponents as meaningful efficiency improvements for cash-management operations at scale.
How BENJI Compares to Competing Tokenized Treasury Products
Franklin Templeton’s BENJI fund sits within a growing market for tokenized government-security products, but its regulatory structure differs meaningfully from competing offerings. BENJI, formally the Franklin OnChain U.S. Government Money Fund (FOBXX), operates across blockchains including Stellar, Ethereum and Solana and has approximately $726 million in assets under management. Unlike many competing tokenized Treasury products, it is an SEC-registered fund and has now received no-action relief related to custody treatment under the Investment Company Act of 1940. BlackRock’s BUIDL, issued with Securitize and launched primarily on Ethereum before expanding across multiple chains, has also attracted substantial assets but is structured as an exempt Regulation D offering rather than a registered retail fund. Hashnote’s USYC, meanwhile, has emerged as another major tokenized Treasury product across multiple blockchains, but it is primarily structured as an institutional private-placement vehicle. The comparison highlights that tokenized Treasury products may look similar technologically while operating under very different regulatory frameworks and investor-access models.
The structural distinction matters for institutional allocators. BENJI is a registered fund operating under the Investment Company Act — meaning it carries the disclosure, governance, and investor-protection obligations of a conventional mutual fund. BlackRock’s BUIDL and most competing tokenized treasury products are offered as exempt private placements, restricting access to qualified institutional buyers and avoiding the full weight of 1940 Act compliance. The SEC’s no-action letter effectively deepens BENJI’s registered-fund moat: it extends the vehicle’s utility to Franklin Templeton’s own registered-fund complex without forcing those funds into unregistered products. For institutional investors constrained by mandates requiring registered vehicles, that distinction is not trivial. The broader institutional tokenization trend — which has drawn significant capital following BlackRock’s entry into the crypto asset class — is increasingly bifurcating between registered and unregistered structures, and regulators are beginning to draw lines between them.
How Serious Players Should Respond
For asset managers running registered-fund complexes, the Franklin Templeton no-action letter establishes a template worth examining carefully. The SEC’s reasoning — that a hybrid book-entry and blockchain record-keeping system, administered by an affiliated transfer agent with full private-key control, is equivalent to conventional custody arrangements — sets out the specific technical and governance conditions under which similar relief may be available. Firms exploring tokenized cash-management products within registered-fund wrappers should treat those conditions not as minimum requirements but as design specifications.
Institutional investors and fund boards should note that the relief is fund-specific and not a blanket authorization. The no-action letter addresses Franklin Templeton’s particular architecture; replicating the outcome requires matching the operational structure, not merely the blockchain. Legal and compliance teams evaluating analogous strategies should assess whether their transfer agent relationships, private-key governance protocols, and error-correction capabilities satisfy the same criteria the SEC found persuasive here. With Washington increasingly acting as the crypto market’s primary catalyst, regulatory positioning is itself a competitive variable.
Regulators and policymakers, meanwhile, face a compounding interpretive burden. Each no-action letter that extends legacy frameworks to blockchain-native structures narrows the space for clean, comprehensive rulemaking. The SEC’s Division of Investment Management has now twice used Franklin Templeton’s fact pattern — once in 1992 and once in 2026 — to justify interpretive relief. Investors and market participants watching the broader tokenization space should track whether the agency chooses to codify the principles embedded in these letters into formal rules, or whether the no-action path becomes the de facto regulatory regime for onchain registered funds. That outcome would concentrate first-mover advantage among firms that have already secured letters, and may raise competitive-access concerns for new entrants.
