On February 14, 2024, Citi Bank, in collaboration with Wellington Management and WisdomTree, achieved a significant milestone by conducting a proof of concept on the tokenization of private funds. This groundbreaking initiative took place on the Avalanche Spruce institutional test Subnet, showcasing the potential of smart contracts to transform traditional assets.
Here’s more information about this clever undertaking.
Simplifying a $10 Trillion Asset Class
The proof of concept focused on tokenizing private funds, an asset class worth $10 trillion known for its complexity, manual processes, and lack of standardization and transparency.
Citi Bank partnered with WisdomTree and Wellington Management to carry out the trial on Avalanche’s Spruce. The experiment, conducted on Avalanche’s Spruce Subnet, demonstrated how smart contracts could introduce new functionalities and operational efficiencies not currently available with traditional assets.
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Industry Leaders Speak Out
Mark Garabedian, the Director of Digital Assets & Tokenization Strategy at Wellington Management gave words of compliment saying, “The Avalanche Spruce test network has proven to be an ample technical sandbox environment.”
Similarly, Maredith Hannon Sapp, Head of Business Development, Digital Assets, at WisdomTree affirmed that “This proof-of-concept showcases the ability to explore the transferability of tokenized funds and related compliance in different markets.”
Traditional finance giants like T. Rowe Price, WisdomTree, Wellington Management, and Cumberland joined the subnet last April to enhance trade execution and settlements, making processes more efficient.
Citi Bank’s Strategic Evaluation
Citi Bank thoroughly assessed the technical, legal, and operational frameworks required to transition traditional assets to a digital platform. Smart contracts were used to encode fund distribution rules and embed them in tokens transferred to hypothetical WisdomTree clients. The experiment showcased how smart contracts could enhance automation, creating an advanced compliance and control environment for issuers, distributors, and investors.
Nisha Surendran, Emerging Solutions Lead for Citi Digital Assets says, “Smart contracts and blockchain technology can enable enhanced rule-enforcement at an infrastructure level, allowing data and workflows to travel with the asset.”
Exploring Possibilities
Various transfer scenarios were evaluated using smart contracts, leveraging simulated identity credentials issued by WisdomTree. A private fund token served as collateral in an automated lending contract with DTCC Digital Assets (formerly Securrency).
Transforming Private Markets
The tokenization of private funds addresses existing inefficiencies, offering potential benefits such as enhanced automation and improved compliance.
Citi Bank’s successful proof of concept on the tokenization of private funds using Avalanche’s Spruce Subnet marks a significant move in the financial industry. Their commitment to exploring the tokenization of private assets signifies a step toward integrating traditional finance with digital assets, crypto, and tokens, paving the way for new operating models in the broader market.