Franklin Templeton is preparing to integrate tokenized assets into conventional investment funds after receiving regulatory relief from the U.S. Securities and Exchange Commission.
In an August 12 no-action letter, the SEC Division of Investment Management stated it would not recommend enforcement action against Franklin funds utilizing Franklin Templeton Investor Services as a custodian for investments in the Franklin OnChain U.S. Government Money Fund, provided specific conditions are met. The SEC noted that the letter reflects staff enforcement views and is not a formal Commission approval or legal conclusion.
The decision provides traditional Franklin funds with the flexibility to utilize the OnChain Fund for cash management purposes, including handling cash balances and securities lending collateral. According to Franklin Templeton, this structure could eventually allow the tokenized money market fund to operate inside mutual funds and ETFs, thereby embedding tokenized assets directly into conventional portfolios.
Operational Benefits and Structure
Launched in 2021, the OnChain U.S. Government Money Fund was the first U.S.-registered money market fund to use a public blockchain as its official system of record. The fund utilizes the BENJI token to represent shares and primarily relies on the Stellar public blockchain. Franklin's broader BENJI suite reported $1.98 billion in assets under management as of April 29.
The fund's integrated recordkeeping system employs blockchain networks to record transactions and anonymous shareholder information, while Franklin Templeton Investor Services maintains the official ownership record. Franklin indicated this framework could enhance liquidity management by enabling hourly net asset value calculations, intraday trading, faster transaction processing, and potentially lower costs. The SEC letter acknowledged that Franklin funds believe these features offer operational advantages over existing cash management vehicles.
Next Steps
Sandy Kaul, Franklin Templeton's head of digital assets and innovation, stated that the firm aims to manage cash more precisely, capture additional yield, and reduce required liquidity holdings. Traditional portfolios could begin utilizing the tokenized fund as early as the fourth quarter, pending approval from individual fund boards. Additionally, Franklin plans to develop more tokenized products to serve as cash or collateral across its broader fund lineup.
