Citi Explores Tokenization of Private Markets with Blockchain Proof of Concept

Financial giant Citi, in collaboration with Wellington Management and WisdomTree, has embarked on a pioneering journey to explore the tokenization of private markets. Through a proof of concept conducted on the Avalanche Spruce institutional test Subnet, Citi aims to leverage blockchain technology to revolutionize the private equity industry.

Private markets, representing a staggering $10 trillion asset class, have long grappled with complex, manual infrastructure, lack of standardization, and limited transparency. These challenges have led to inefficiencies in distribution and operations. However, Citi’s proof of concept seeks to address these issues by harnessing the power of blockchain and smart contracts.

The experiment simulated the tokenization of a private equity fund issued by Wellington Management, utilizing distributed ledger technology (DLT) to encode underlying fund distribution rules. Smart contracts were deployed to automate processes and enhance compliance and control for issuers, distributors, and investors. By embedding distribution rules into tokens transferred to WisdomTree clients, the proof of concept showcased the potential for greater automation and efficiency in private market transactions.

Furthermore, Citi evaluated various transfer scenarios using smart contracts, including using a private fund token as collateral in automated lending contracts with DTCC Digital Assets. This comprehensive evaluation aimed to assess the technical, legal, and operational frameworks necessary to transition traditional assets onto a digital platform. The goal is to support clients in issuing and accessing tokenized private assets in a controlled and scalable manner while ensuring interoperability with the traditional ecosystem.

Nisha Surendran, Emerging Solutions Lead for Citi Digital Assets, emphasized the transformative potential of blockchain technology in enhancing rule enforcement and operational efficiency. She highlighted the feasibility of opening up new operating models and creating efficiencies for the broader market through the tokenization of private assets.

The proof of concept, conducted on the Avalanche Spruce testnet, signifies Citi’s commitment to embracing innovation in collaboration with industry partners. The permissioned subnet, designed for large financial institutions, provides a robust environment for testing blockchain solutions tailored to the needs of the private equity industry.

Citi’s foray into blockchain technology extends beyond the tokenization of private markets. In November, the bank unveiled an application leveraging blockchain infrastructure for foreign exchange (FX) trades. This tool streamlines pricing and execution of bilateral spot FX trades, enhancing efficiency and transparency in FX transactions.

Additionally, Citi Treasury and Trade Solutions introduced a digital asset solution in September, enhancing cash management and trade finance capabilities through blockchain and smart contracts. These initiatives underscore Citi’s commitment to driving innovation and enhancing its product and service offerings across various segments of the financial industry.