Citi (NYSE:C) says it has successfully completed a proof of concept regarding the tokenization of private funds. The firm partnered with WisdomTree and Wellington Management on the project.
Tokenization refers to the digitization of assets, including securities. Typically, a tokenized asset will utilize blockchain or distributed ledger technology to accomplish this task.
Citi states that it utilized Avalanche Spruce to test the functionality, including smart contract capabilities. Avalanche is a popular blockchain network that is geared towards enterprise needs with low-cost and fast transactions.
ABN AMRO acted in the role of a traditional investor, and a Wellington private equity fund was tokenized.
This proof of concept was said to have demonstrated how smart contracts could be used to enable automation and potentially create an “enhanced compliance and control environment for issuers, distributors, and investors.”
Citi noted that private markets represent a $10 trillion asset class yet it is convoluted and difficult to manage. Thus, a tokenized ecosystem could help remove some of the intrinsic friction in these markets.
Nisha Surendran, Emerging Solutions Lead for Citi Digital Assets, Smart contracts and blockchain can enable enhanced rule-enforcement while allowing data and workflows to travel with the asset.
“We believe that by testing the tokenization of private assets, we are exploring the feasibility to open-up new operating models and create efficiencies for the broader market.”