Franklin Templeton Achieves Historic First: Tokenized Assets Enter Traditional Funds

Franklin Templeton has made history in the U.S. by receiving SEC approval to use a tokenized money market fund within its traditional ETFs and mutual funds. This decision marks the first regulatory step allowing the use of a "digital native" product within traditional funds.

Details and Scope of Approval

In a letter published on August 12, the SEC's Investment Management Division stated that it would not issue an application recommendation if Franklin Templeton's registered funds invest in the Franklin OnChain U.S. Government Money Market Fund (FOBXX). This approval provides flexibility regarding the custody rules of the Investment Companies Act of 1940, while paving the way for funds to use the tokenized fund as a portfolio asset, cash position, or collateral. Each fund requires its own board of directors' approval to adopt this arrangement.

How Will It Work?

Franklin's strategy aims to keep tokenized assets within the US registered fund system. FOBXX is a regulated money market fund that records equity transactions on public blockchains (using Stellar as the mainnet). Each BENJI token represents a fund share. The key point is that the blockchain is not a formal ownership record; Franklin Templeton Investment Services will maintain the traditional transfer agent system, continuing to hold official records and control private keys. This structure doesn't require investors to directly open a crypto wallet or buy BENJI; while investors retain their shares in the traditional fund, the fund's portfolio can include tokenized assets.

Potential Impact and Future Plans

Franklin's move comes at a time when the market capitalization of tokenized assets has reached approximately $38 billion. With this structure, the company aims to allow funds to manage their cash balances more precisely, achieve higher returns, and reduce the amount of cash held for liquidity needs. Franklin plans to launch the application as soon as possible, likely in the fourth quarter, and aims to release additional tokenized products in the future that can be used as cash or collateral in the funding series.

This post is not investment advice and is for informational purposes only regarding market conditions.

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