Citi has joined the ranks of financial companies exploring the integration of real-world assets into distributed ledger technology networks and recognized significant advantages over conventional models.
In its latest report, the company emphasizes how tokenization can unlock value in traditional markets by leveraging new use cases and digital distribution channels. This process not only drives greater automation but also establishes more standardized data pathways and improves the overall operating model, especially through features such as digital identity and smart contracts.
The insight from Citi follows the completion of a proof of concept centered on the tokenization of a private equity fund managed by Wellington Management.
Tokenization, which involves the digitization of the representation of physical and financial assets on a blockchain , has been a major topic of discussion over the past year. Citi's report highlights how tokenization of traditional assets can lead to meaningful improvements and is likely an important step towards achieving scalability.
Citi carried out its proof of concept by plugging Wellington's funds into the Spruce Avalanche subnet, a network designed for institutions to experiment with on-chain trade execution and settlement . In this framework, fund distribution rules are encoded into smart contracts and embedded in tokens transferred to WisdomTree's hypothetical clients.
These tokens are then used as collateral in automated loan contracts with DTCC Digital Assets. DTCC's acquisition of Securrency in December further highlighted the growing institutional interest in on-chain assets.
Nisha Surendran, Citi Digital Assets new solutions lead, highlighted the importance of testing private asset tokenization in exploring new operating models and improving market efficiency. He emphasized how smart contracts and blockchain technology can improve rule enforcement at the infrastructure level, ensuring smooth management of data and workflows alongside assets.
While Citi's initiative is noteworthy, it reflects broader trends in the industry. For example, Securitize's acquisition of Onramp Invest and JPMorgan's facilitation of collateral transactions between BlackRock and Barclays via decentralized applications underscore the momentum behind tokenization efforts.
Recently, BitGo acquired Brassica, signaling a push to digitize the alternative assets industry through tokenization.
Executives at WisdomTree, which manages about $100 billion in assets, are interested in capitalizing on their early mover status in tokenization. The company's consumer app, which launched last year, offers a variety of tokenized assets, with stock ownership records stored on the Stellar or Ethereum blockchains.
According to Maredith Hannon Sapp, WisdomTree's head of digital asset business development, blockchain-enabled finance represents the future of the industry. He sees the proof of concept as a means to explore tokenized funds transfer capabilities and ensure compliance across multiple markets.
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