Citi has partnered with Wellington Management and WisdomTree to investigate the tokenization of private markets.
The collaboration conducted a proof-of-concept using the Avalanche Spruce institutional test Subnet for blockchain deployments tailored for institutions. The findings revealed that smart contract capabilities could introduce novel functionalities and operational efficiencies that are currently lacking in traditional asset management. These advancements might enable buy- and sell-side institutions to interact with distributed ledger technology (DLT) infrastructure in a regulated environment characterized by low risk and minimal barriers to entry.
In the proof-of-concept, ABN Amro simulated the role of a traditional investor by testing the tokenization of a private equity fund issued by Wellington. This process brought the fund onto a DLT network, where the underlying distribution rules were encoded into a smart contract embedded within the token transferred to hypothetical clients of WisdomTree.
Citi stated that this experiment showcased how smart contracts can facilitate greater automation and potentially enhance compliance and control mechanisms for issuers, distributors, and investors.
During the experiment, Citi also assessed various transfer scenarios utilizing smart contracts that relied on simulated identity credentials issued by WisdomTree. They explored the use of a private fund token as collateral in an automated lending contract with DTCC Digital Assets.
Nisha Surendran, the emerging solutions lead at Citi Digital Assets, remarked, “Smart contracts and blockchain technology can enable enhanced rule enforcement at an infrastructure level, allowing data and workflows to travel with the asset. We believe that by testing the tokenization of private assets, we are exploring the feasibility of opening up new operating models and creating efficiencies for the broader market.”