Banking giant Citi has completed a proof of concept on tokenization of private funds along with Wellington Management and WisdomTree.
The proof of concept, which was conducted on the Avalanche Spruce institutional test Subnet, found that smart-contract capabilities could deliver new functionality and operational efficiencies, which are currently unavailable with traditional assets. These new functionalities could enable buy- and sell-side institutions to engage with distributed ledger infrastructure in a low-risk, low barrier-to-entry manner that is consistent with regulations.
Private markets are known to have an infrastructure that is complex and manual with a lack of standardization and transparency, mounting to operational inefficiencies.
With ABN AMRO simulating the role of a traditional investor, the proof of concept tested the tokenization of a Wellington issued private equity fund by bringing it onto a distributed ledger technology (DLT) network. The underlying fund distribution rules were encoded into the smart contract and embedded in the token transferred to hypothetical WisdomTree clients.
“The proof of concept demonstrated how smart contracts could be used to enable greater automation and potentially create an enhanced compliance and control environment for issuers, distributors, and investors,” Citi said in a statement.
“By evaluating relevant technical, legal and operational frameworks needed to bring traditional assets on to a digital platform, Citi explored how to support clients issuing and accessing tokenized private assets in a controlled and scalable manner, while ensuring interoperability with the traditional ecosystem.”
Commenting on the experiment, Maredith Hannon Sapp, head of business development, digital assets, at WisdomTree said, “We believe blockchain-enabled finance is the future of the industry, and this proof of concept showcases the ability to explore the transferability of tokenized funds and related compliance in different markets. This will inform future in-production use cases of how blockchain technology and smart contracts can be used in on-chain transactions.”
