Yesterday the SEC provided a no action letter to Franklin Templeton that allows other Franklin Templeton funds to park cash in the BENJI tokenized money market fund, which currently has around $726 million in assets under management (AUM). The letter itself was more focused on allowing the transfer agent to custody the assets using private keys. Both the incoming letter and the SEC response carry the same date, indicating the relief was fully pre-negotiated.
Franklin Templeton has been a blockchain trailblazer with BENJI as the first tokenized money market fund launched by a major incumbent asset manager in 2021. For decades Franklin has used its own money market funds to earn a return on excess cash held in other funds. Money market funds typically calculate NAV once a day and accept trades during narrow windows. Franklin described the benefits of sweeping into BENJI as “hourly net asset value calculations, intraday trading, faster transaction processing and the potential for reduced costs, as well as enhanced data security.” It plans to use BENJI for cash and securities lending collateral, which is typically also cash.
The SEC was comfortable giving the greenlight largely because of the degree of control exerted by Franklin Templeton. Its in-house transfer agent uses blockchains as the primary record of transactions, combined with off chain personal information. But Stellar has always been the asset manager’s primary blockchain, in part because it gives institutions control over tokens natively, even though BENJI now uses a smart contract wrapper on Stellar. That means that if something went wrong, such as an error, the theft of tokens or lost keys, Franklin Templeton can always step in and rectify the situation.
One notable first is that SEC staff required that if the transfer agent ever changes, the smart contract admin keys and controls must transfer to the successor, a condition that could become a template for every tokenized fund structure. But the bigger implications are about scale and what happens when DTCC tokenized Treasuries go live in October.
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