Ordinary holders of the giant's ETFs may not open crypto wallets, but they will be exposed to on-chain assets for the first time through the fund's cash positions.
Written by: ChandlerZ, Foresight News
Bloomberg reported on August 20 that Franklin Templeton plans to include its tokenized money market fund Franklin OnChain U.S. Government Money Fund (BENJI) in ETFs and mutual funds for traditional investors to manage cash and securities lending collateral—collateral assets received from counterparties when the fund lends securities. This is equivalent to the fund transferring spare cash in its account into an on-chain money market fund to continue earning short-term Treasury yields when the money is not in use, and then redeeming it intraday when it needs to buy other assets or return collateral.
Previously, a no-action letter from the Investment Management Division of the U.S. Securities and Exchange Commission (SEC) opened the regulatory door for this plan, allowing registered open-end and closed-end funds under Franklin Templeton Group to invest. The fund registers shares on the blockchain, with on-chain interests represented by BENJI tokens.
According to BENJI's prospectus, at least 99.5% of its assets are invested in U.S. government securities, cash, and repurchase agreements fully secured by government securities or cash, with no Bitcoin or Ethereum underlying. When traditional funds invest their pending cash into BENJI, they hold mutual fund shares regulated by the U.S. Investment Company Act of 1940, and returns still come from short-term government assets.
This path connects on-chain assets to the daily cash management of traditional funds. Ordinary fund holders do not need to open crypto wallets and may access BENJI through the fund's internal holdings. As of July 31, Franklin Templeton manages $1.80 trillion in assets, including $80.8 billion in cash management assets, providing potential distribution channels through its existing fund system.
However, future scale depends on actual allocation. The SEC letter did not list the first batch of funds adopting BENJI, the amount to be invested, or the launch time. After the regulatory door is opened, the problem shifts to custody: how to integrate fund shares controlled by private keys without paper certificates into the ledgers of traditional funds?
Custody Rules Designed for Paper Securities Block On-Chain Funds
The difficulty of BENJI entering traditional funds lies in custody. Section 17(f) and Rule 17f-2 of the U.S. Investment Company Act of 1940 were formed in the era of paper securities, with some requirements assuming funds can physically hold securities certificates, store them in vaults, and maintain physical isolation. On-chain fund shares are controlled by private keys and have no paper to put into vaults.
Franklin Templeton Investor Services (FTIS) is both BENJI's transfer agent and an affiliate of the group. If traditional funds entrust BENJI shares to FTIS for custody, it would fall under the affiliate self-custody rules. The SEC cited a 1992 precedent involving the Franklin system in its no-action letter, recognizing that book-entry registration can replace paper certificate arrangements after meeting control conditions.
BENJI's system retains both off-chain ledgers and on-chain records. FTIS's internal system stores private information such as names and dates of birth, while the public blockchain records anonymous data like subscriptions, redemptions, dividends, net asset value (NAV), and transaction history. The two parts are linked in real-time to form an official shareholder roster. FTIS controls the whitelist, smart contract management rights, and final records; it can also correct erroneous transactions, freeze or migrate wallet records, and recover ownership if private keys are lost.
Each traditional fund investing in BENJI will get an independent Stellar wallet, with private keys held by FTIS. The fund gains on-chain settlement capabilities, but final ownership judgment remains with the regulated transfer agent. A key reason the SEC accepted this arrangement is FTIS's full control over the system and records.
Franklin Templeton listed practical benefits of on-chain cash management in its application, including hourly NAV calculation, intraday transactions, faster processing, potential cost reduction, and enhanced data security. Traditional money market funds usually calculate NAV once a day and accept transactions within limited windows. For fund managers handling redemptions and securities lending collateral, more frequent cash scheduling is more attractive than the tokens themselves.
At the same time, the fund board needs to approve the custody arrangement and review it at least annually; transaction confirmations must be reconciled daily; each fund's account and wallet must be isolated from other holders; independent accountants must conduct at least 3 verifications per fiscal year, with at least 2 unannounced. If FTIS replaces the transfer agent, smart contract management rights and control required for record recovery must be transferred to the successor entity.
From Moving ETFs On-Chain to Inserting On-Chain Funds into ETFs
Franklin Templeton has already completed another connection this year. On March 25, tokenized securities platform Ondo Finance announced the introduction of 5 ETFs managed by Franklin Templeton onto the chain, covering growth stocks, large-cap stocks, fixed income, equity income, and gold products. Ondo provides the tokenization and digital distribution layer, while Franklin Templeton continues to manage the underlying ETFs.
In other words, previously traditional ETFs entered the on-chain market via third-party platforms; now it's traditional ETFs and mutual funds holding on-chain funds internally. The former path expands product distribution, while the latter transforms the fund's cash and collateral infrastructure.
BENJI has been operating for five years for this step. Franklin Templeton launched the product in 2021, making it the first U.S.-registered mutual fund to use a public blockchain as its official share registration system. Company data shows that as of April 29, the BENJI series covering multiple markets and products managed $1.98 billion in assets; from April 2024 to March 2026, the number of investors increased by over 140%, and peer-to-peer cumulative transfers exceeded $211 million as of March 31. Data from RWA.xyz shows that U.S. on-chain government money market funds directly covered by this no-action letter managed approximately $726 million in August.
The $1.98 billion figure counts the entire BENJI product series, while the $726 million only counts the U.S. funds involved in this no-action letter. Even using the larger former figure, BENJI is still small compared to the group's total AUM of $1.80 trillion. Once traditional funds' cash pools connect to BENJI, incremental funds can come from the existing fund system.
Starting in 2025, the U.S. market's regulatory infrastructure has accelerated the improvement of tokenized product regulation. In December 2025, SEC staff issued a no-action letter to the Depository Trust Company (DTC) supporting its launch of a securities tokenization pilot. SEC Commissioner Hester Peirce described the project as a gradual step in the market's on-chain process and reminded that different tokenization structures would raise different regulatory issues. The custody arrangement obtained by BENJI this time further advances tokenization from issuance and registration to internal cash management of funds.
As for which ETFs and mutual funds will first allocate to BENJI, how allocation caps are set, when they will be used for securities lending collateral, and whether relevant prospectuses will be updated, these will determine how much real capital this no-action letter can bring. The SEC has now solved the problem of how to custody on-chain shares; whether traditional funds will adopt it on a large scale awaits the disclosure of the first batch of holdings.