The giant’s ETF regular holders may not open a crypto wallet, but they will first come into contact with on-chain assets through the fund’s cash position.
Written by: ChandlerZ, Foresight News
Bloomberg reported on August 20 that Franklin Templeton plans to put its tokenized money market fund, Franklin OnChain U.S. Government Money Fund (BENJI), into ETFs and mutual funds aimed at traditional investors, to manage cash and securities-lending collateral—i.e., the collateral assets that the fund receives from counterparties when it lends securities. This is like moving the fund’s cash in its account into an on-chain money market fund: while the money is temporarily not needed, it continues to earn short-term U.S. Treasury yields; when it needs to buy other assets or return the collateral, it can be redeemed within the day to move the funds out.
Previously, a no-objection letter issued by the SEC’s Division of Investment Management opened the regulatory gateway for this plan, allowing registered open-end and closed-end funds under the Franklin Templeton Group to invest. The fund uses blockchain-based share registration, and on-chain interests are represented by BENJI tokens.
BENJI’s offering memorandum shows that at least 99.5% of its assets are directed to U.S. government securities, cash, and repurchase agreements fully secured by government securities or cash. At the underlying level, there is no Bitcoin or Ethereum. After traditional funds allocate cash into BENJI, they hold mutual fund shares governed by the U.S. Investment Company Act (of 1940). Returns still come from short-term government assets.
This pathway connects on-chain assets to the cash component that traditional funds must handle every day. Ordinary fund holders don’t need to open crypto wallets, and they may also gain exposure to BENJI through the fund’s internal holdings. As of July 31, Franklin Templeton managed $1.80 trillion in assets, including $80.8 billion in cash management assets—offering a potential distribution entry point provided by the existing fund ecosystem.
However, future scale will still depend on actual allocation. The U.S. SEC staff’s no-objection letter does not list the first batch of funds adopting BENJI, the amounts to be invested, or the time the funds will be enabled. Once the regulatory gateway opens, the issue lands with the custodian: how can fund shares—controlled by private keys and without any paper certificates—enter the ledgers of traditional funds?
A custody rule designed for paper securities—one that blocks on-chain funds
The difficulty of getting BENJI into traditional funds lies in custody. U.S. Investment Company Act (of 1940) Section 17(f) and its Rule 17f-2 were formed in the era of paper securities, when some requirements assume the fund can actually hold securities certificates—placing the certificates into a vault and physically isolating them. On-chain fund shares are controlled by private keys, with no paper that can be put into a vault.
Franklin Templeton Investor Services (FTIS) is both BENJI’s transfer agent and an affiliate of the group. If a traditional fund hands its BENJI shares to FTIS for custody, it would fall under affiliate self-custody rules. In the no-objection letter, the SEC cited a 1992 precedent involving the Franklin Templeton structure as well, recognizing that ledger-based registration formats can replace paper certificate arrangements after meeting control conditions.
BENJI’s system keeps both off-chain ledgers and on-chain records. FTIS’s internal systems store private information such as names and birth dates. The public blockchain records anonymous data such as subscriptions, redemptions, distributions, net asset values, and trading history. The two parts are linked in real time to form an official register of holders. FTIS controls the whitelist, smart contract permissions, and final-record updates; it can also correct erroneous transactions, freeze or migrate wallet records, and restore ownership if a private key is lost.
Each traditional fund that invests in BENJI will receive a separate Stellar wallet, and the private key will be stored by FTIS. The fund gets the capability for on-chain settlement; ultimately, ownership judgment is still held by the regulated transfer agent. A key reason the SEC accepted this arrangement is that FTIS has full control over the system and the records.
In its filing, Franklin Templeton listed the practical benefits of on-chain cash management, including net asset value calculations every hour, intraday trading, faster transaction processing, potential cost reductions, and improved data security. Traditional money market funds typically calculate NAV only once per day and accept transactions within a limited window. For fund managers who must handle subscriptions/redemptions and securities-lending collateral, higher-frequency cash allocation is more attractive than the token itself.
Meanwhile, the fund’s board must approve the custody arrangements and review them at least annually; transaction confirmations must be reconciled daily; each fund’s accounts and wallets must be isolated from those of other holders; and an independent auditor must perform at least three verifications per fiscal year, with at least two not preceded by advance notice. If FTIS replaces the transfer agent, the control rights needed to manage smart contract permissions and recover records must also be transferred to the successor institution.
From moving ETFs onto the blockchain to stuffing blockchain-based funds into ETFs
This year, Franklin Templeton has already completed another kind of connection. On March 25, Ondo Finance, a tokenized securities platform, announced that it would bring five Franklin Templeton ETFs on-chain, covering growth stocks, large-cap stocks, fixed income, equity income, and gold products. Ondo provides a tokenization and digital distribution layer, while Franklin Templeton continues to manage the underlying ETFs.
In other words, previously, traditional ETFs used third-party platforms to enter on-chain markets; now it’s traditional ETFs and mutual funds holding on-chain funds internally. The first path expands product distribution, while the second path remodels the cash and collateral infrastructure of funds.
BENJI has been running this step for five years. 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 assets of $198 million. From April 2024 to March 2026, the number of investors grew by more than 140%, and point-to-point cumulative transfers through March 31 exceeded $211 million. Data from RWA.xyz indicates that U.S. on-chain government money market funds directly covered by this no-objection letter managed about $726 million as of August.
The $198 million figure covers the entire BENJI product series, while $72.6 million counts only the U.S. funds involved in this specific no-objection letter. Even if the larger former figure is used, BENJI remains small compared with the group’s total $1.80 trillion in assets under management. Once the cash pool of traditional funds is connected to BENJI, incremental capital can come from the existing fund ecosystem.
Starting in 2025, the U.S. market’s regulatory infrastructure has been accelerating its refinement for regulation of tokenized products. In December 2025, SEC staff issued a no-objection letter to the Depository Trust & Clearing Corporation (DTC) supporting it in running a pilot program for tokenizing securities. SEC Commissioner Hester Peirce described the project at the time as an incremental step in the on-chain process in the market, and warned that different tokenization structures would generate different regulatory issues. The custody arrangement BENJI received further moves tokenization from issuance and registration into internal fund cash management.
As for which ETFs and mutual funds will be the first to allocate to BENJI, how the allocation caps will be set, when it will be used for securities-lending collateral, and whether the relevant offering memoranda will be updated—those will determine how much real money this no-objection letter can actually bring. The SEC has already addressed how on-chain shares are to be custodied. Whether traditional funds will adopt it at scale still awaits disclosures of the first holdings.