Woofun AI reports that the SEC has granted regulatory clearance for Franklin Templeton to integrate its tokenized money market fund, Franklin OnChain U.S. Government Money Fund (BENJI), into traditional ETFs and mutual funds, enabling ordinary investors to access on-chain assets without opening cryptocurrency wallets.

This strategic shift allows traditional funds to utilize BENJI for managing cash positions and securities lending collateral, which are assets held as guarantees when funds lend out securities. The mechanism essentially transfers spare cash into an on-chain money market fund, permitting the capital to continue earning returns from short-term government bonds while idle. When the fund requires liquidity to purchase other assets or return collateral, it can redeem and transfer the funds within the same day, optimizing capital efficiency.

The regulatory pathway was cleared by a letter of no objection from the SEC's Investment Management Division, permitting both open-end and closed-end funds under Franklin Templeton to make such investments. According to the fund's prospectus, at least 99.5% of BENJI's assets are invested in U.S. government securities, cash, and repurchase agreements fully secured by government securities or cash.

Notably, the fund structure involves no exposure to Bitcoin or Ethereum, ensuring that the underlying risk profile remains aligned with traditional short-term government assets.

Under this framework, traditional funds allocate their cash to BENJI and hold shares of mutual funds governed by the U.S. Investment Company Act of 1940. The returns generated continue to stem from short-term government assets, integrating on-chain assets into the daily cash management processes of traditional funds. Ordinary fund holders need not open cryptocurrency wallets, yet they may still come into contact with BENJI through the funds' internal holdings, bridging the gap between traditional finance and blockchain infrastructure.

As of July 31, Franklin Templeton managed $1.8 trillion in assets, of which $80.8 billion was allocated to cash management assets, providing a substantial potential distribution channel through its existing fund structure.

However, the actual scale of adoption in the future will depend on actual allocations, as the SEC's letter did not specify which funds would first use BENJI, the amounts involved, or the timeline for implementation.

Woofun AI notes that a critical hurdle lies in custody: how can fund shares controlled by private keys without physical certificates be recorded in traditional fund ledgers? Custody rules designed for paper securities pose significant difficulties for on-chain funds like BENJI to enter traditional funds. Section 17(f) of the U.S. Investment Company Act of 1940 and Rule 17f-2 were established in the era of paper securities, with some requirements assuming that funds could physically hold securities certificates and store them in safes for physical isolation.

Franklin Templeton Investor Services (FTIS), a related party of the group, acts as the transfer agent for BENJI. When traditional funds entrust BENJI shares to FTIS for custody, they fall under self-custody rules applicable to related parties. In its letter of no objection, the SEC cited a 1992 precedent involving Franklin Templeton's operations, acknowledging that ledger-based registration can replace paper certificates once control conditions are met. BENJI's system maintains both off-chain ledgers and on-chain records; FTIS' internal system stores personal information such as names and dates of birth, while the public blockchain records anonymous data such as purchases, redemptions, dividends, net values, and transaction history.

These two systems are linked in real time to form an official holder registry, with FTIS controlling the list of authorized entities, smart contract management permissions, and final records. FTIS can correct erroneous transactions, freeze or transfer wallet records, and restore ownership in case of lost private keys. Each traditional fund investing in BENJI will receive an independent Stellar wallet, with the private key kept by FTIS, ensuring that while the fund gains on-chain settlement capabilities, ultimate ownership remains under the control of the regulated transfer agent.

Franklin Templeton listed practical benefits of on-chain cash management in its application, including hourly net value calculations, intraday trading, faster transaction processing, potential cost reductions, and enhanced data security. Traditional money market funds typically calculate their net value once a day and allow transactions only within a limited timeframe. For fund managers handling purchases, redemptions, and securities lending collateral, more frequent cash adjustments are more attractive than the tokens themselves. Compliance requirements mandate that the fund's board of directors approve custody arrangements and review them at least annually; transactions must be reconciled daily; each fund's account and wallet must be isolated from those of other holders; and independent accountants must conduct at least three audits per fiscal year, with at least two conducted without prior notice.

From bringing ETFs onto the blockchain to integrating on-chain funds into ETFs, Franklin Templeton has completed another connection this year. On March 25, the tokenization securities platform Ondo Finance announced that it would bring five ETFs managed by Franklin Templeton onto the blockchain, 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.

Previously, traditional ETFs used third-party platforms to enter the on-chain market; now, traditional ETFs and mutual funds hold on-chain funds internally, transforming cash and collateral infrastructure. BENJI has been operating for five years—launched by Franklin Templeton in 2021—and became 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 managed assets worth $1.98 billion. From April 2024 to March 2026, the number of investors grew by over 140%, with cumulative peer-to-peer transfers exceeding $211 million as of March 31.

Data from RWA.xyz shows that U.S. on-chain government money market funds covered by this letter of no objection managed approximately $726 million in August. Starting in 2025, regulatory infrastructure in the U.S. market for tokenized products has been rapidly improved. In December 2025, SEC officials issued a letter of no objection to the DTCC, supporting its efforts to launch pilot programs for securities tokenization. SEC Commissioner Hester Peirce described this initiative as a gradual step toward on-chain integration in the market, noting that different tokenization structures would give rise to varying regulatory challenges.

The custody arrangements approved for BENJI further advance tokenization from issuance and registration to cash management within funds. As for which ETFs and mutual funds will first adopt BENJI, what the allocation limits will be, when it will be used for securities lending collateral, and whether related prospectuses will be updated, these factors will determine how much real capital this letter of no objection will bring in. While the SEC has resolved the issue of how to store on-chain shares, whether traditional funds will adopt this approach on a large scale remains to be seen, pending the disclosure of the first holdings.