Citibank Trial Of Private Equity Fund Tokenization In Avalanche

Citibank is preparing to launch tokenized security. (Photo; Doc. MoneyPlate)

JAKARTA - Citibank, one of the largest financial services companies in the world, is testing the possibility to issue tokenized securities aka tokenized security on blockchain. The bank is working closely with Wellington Management and WisdomTree, two companies involved in the crypto industry, to conduct experiments on the Avalanche (AVAX) blockchain platform. The aim of the project is to increase efficiency and transparency in the capital market, as well as comply with applicable regulations.

Tokenization is a process of converting real assets or claim rights into blockchain-tradable digital tokens. Tokenization can provide benefits such as higher liquidity, lower costs, wider access, and better security. Some examples of tokenizable assets are stocks, bonds, properties, arts, and commodities.

In a trial conducted by Citibank, Wellington Management proposed to tokenize a private equity fund offered to WisdomTree clients. The funds have distribution rules embedded in smart contracts, which determine how tokens are distributed and transferred.

In addition, the token can also be used as collateral in automated loans provided by DTCC Digital Assets, a crypto unit of Depository Trust & Clearing Corporation, a company providing clearing and settlement services for financial markets.

According to Puneet Singhvi, head of Citi's institution's digital assets, the trial shows that it is possible to issue and store asset tokens on blockchain in a controlled manner and in accordance with the traditional banking system. He also said that the trial provides guidance on how financial institutions can interact with blockchain infrastructure in a safe and legal manner.

Citibank is not the only bank interested in asset tokenization. Last month, a group of former Citigroup executives announced plans to issue Bitcoin Depository Receipts (BTC DRs), which will provide Bitcoin exposure to institutional investors without the need for registration under the Securities Act of 1933. In September, Citibank also became the first digital guard of the BondbloX Bond Exchange, an exchange that uses blockchain to facilitate access to the bond market.

Avalanche is a platform that supports asset tokenization at high speed and scalability. The platform's original coin, AVAX, is currently the 10th largest cryptocurrency by market cap, at a price of 75.58 US dollars (Rp 1.2 million) per coin. Avalanche also hosts various other crypto projects, such as Republic, a platform that allows investors to participate in funding startups.

The asset tokenization is expected to be a game changer for the financial industry, as it can provide new opportunities for investors and issuers. Citibank is one of the banks that dares to take the first steps to take advantage of blockchain technology in this field, and will likely be followed by other banks in the future.