Asset manager Franklin Templeton plans to integrate blockchain-based assets into traditional investment funds following a recent regulatory development. While tokenization has traditionally involved converting conventional assets into blockchain-based representations, the U.S. Securities and Exchange Commission (SEC) has now issued a no-action letter to the firm.
The regulatory response allows conventional mutual funds and exchange-traded funds (ETFs) to hold tokenized money-market funds as collateral or as part of their portfolios. Sandy Kaul, Franklin Templeton's Head of Digital Assets and Innovation, stated that the move enables funds to experience the efficiency of a better money-market fund option, allowing for more precise management, yield capture, and tighter cash liquidity control.
According to Bloomberg, the main offering involved is the Franklin OnChain U.S. Government Money Fund (BENJI), which utilizes blockchain-based tokens to represent fund ownership and invests in U.S. government securities and cash equivalents. Kaul noted that this is the first time the SEC has specifically granted this type of regulatory comfort, though it does not represent a blanket approval.
The development holds significant potential given Franklin Templeton's scale, which includes approximately 130 ETFs with around $82 billion in global assets and roughly $790 billion in mutual fund business. While Franklin's tokenized money-market products are currently valued at $2.6 billion, industry observers highlight the distribution channel as a primary factor.
The partial approval aims to improve capital efficiency, liquidity, and collateral management, potentially transforming the ETF market over time while allowing investors to indirectly interact with ETFs via blockchain platforms. Meanwhile, the broader ETF market continues to navigate fluctuating flows, with Bitcoin ETFs recording net inflows exceeding $500 million in the third quarter following earlier outflows, and Jane Street reporting an increased position of approximately $1.06 billion in Bitcoin ETFs during the second quarter.
