The U.S. Securities and Exchange Commission’s Division of Investment Management has issued a no-action letter to Franklin Templeton, granting regulatory clearance for the firm’s traditional registered funds to invest in its blockchain-based OnChain U.S. Government Money Fund, widely known as BENJI. The decision, posted Wednesday, addresses custody requirements under the Investment Company Act of 1940.
In the letter, the SEC cited Section 17(f) and Rule 17f-2 of the Act, which generally require physical safeguards for securities. The regulator determined that Franklin’s registered funds—such as mutual funds and ETFs—may hold shares of the on-chain money market fund for cash management without satisfying certain physical-vault provisions, provided they follow the terms described.
“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 analyst James Seyffart said on X.
BENJI combines internal book-entry records with transaction records on the Stellar blockchain, and its affiliated transfer agent maintains full control over private keys, administrative functions, and the official shareholder file. Franklin Templeton Investor Services will create and control blockchain wallets on Stellar for investing funds and retain the private keys. The SEC noted this blended on-chain and off-chain transfer agent setup was similar enough to prior book-entry arrangements that the funds need not satisfy physical certificate and vault rules.
The SEC also referenced a 1992 no-action letter involving Franklin to support its decision. BENJI first launched on Stellar in 2021 and has since expanded to several blockchains, including Ethereum and Solana. The fund invests primarily in U.S. government securities and seeks to maintain a stable $1 share price. It currently has about $726 million in assets under management, with the majority on Stellar, according to RWA.xyz.
While a no-action letter does not change law, it provides a safe harbor for the requesting party and creates a potential regulatory pathway for other asset managers to launch tokenized fund offerings. Industry observers view the move as a cautious but progressive step toward integrating blockchain-based assets into regulated financial products.
