One of the largest U.S. banks conducted a simulation of tokenizing a private equity fund using blockchain, paving the way for institutional blockchain adoption.
Citibank (NYSE: C) has entered into a proof-of-concept partnership with New York exchange-traded fund (ETF) company WisdomTree and Wellington Capital, a Boston-based investment manager with more than $1.4 trillion in assets.
Wellington created a virtual private equity fund that Citi tokenized using blockchain technology. The giant bank encoded fund distribution rules into the tokenized funds through smart contracts, directing token splits and automatically transferring the proceeds to virtual WisdomTree customers.
Through simulations, Citi demonstrated that asset managers can tokenize funds on the blockchain in a controlled environment, said Puneet Singhvi, head of digital assets at the bank. He also demonstrated that tokenized funds can comply with legal regulations and be compatible with existing banking systems, providing a seamless transition for legacy institutions.
The three companies also investigated how private equity tokens could be used as collateral in automated lending agreements. Depository Trust & Clearing Corporation’s digital assets division also participated in the simulation, which Singhvi said yielded positive results.
Singhvi added that Citi, the country’s third-largest lender, will evaluate whether to begin offering related services in the coming weeks based on the test results.
Nisha Surendran, who leads the emerging solutions team in Citi’s digital assets division, says blockchain can bring efficiencies to the $6 trillion private equity industry.
“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,” she said.
Citi continues to lead the U.S. banking industry in exploring blockchain solutions. Last September, the bank became the first digital custodian of BondbloX, the world’s first fractional bond exchange that allows investments as low as $1,000. The bank has also partnered with SWIFT and other major banks for a blockchain interoperability pilot that seeks to enable tokenization in the banking sector.
Watch: Gold and Stablecoin Tokenization
Are you new to blockchain? To learn more about blockchain technology, check out CoinGeek’s Blockchain for Beginners section, our ultimate resource guide.