Citi, in collaboration with Wellington Management and WisdomTree, has announced the successful completion of a proof of concept for tokenising private funds aimed at increasing efficiency in the $10 trillion private asset market.
The private asset market, according to Citi's press release, is complex and manual, with a lack of standarisation and transparency which causes inefficient distributions and operations.
Recently, the tokenisation of private assets has gained significant attention. Hong Kong's Securities and Futures Commission has issued guidance on tokenising traditional financial instruments, while the UK has proposed a sandbox to test modified regulatory settings for tokenisation. Thailand's Securities and Exchange Commission announced plans to enable tokenisation to facilitate development in key sectors.
Citi's proof of concept, which was completed on the Avalanche Spruce institutional test Subnet, tokenised a private equity fund issued by Wellington Management allowing units to be represented as tokens on a blockchain. The fund's distributions were programmed using smart contracts and transferred to WisdomTree clients using simulated identity credentials.
Market efficiency through deeper liquidity and streamlined compliance processes appear to be the leading motivation for the proof of concept. According to Citi Digital Asset's Emerging Solutions Lead, Nisha Surendran.
Smart contracts and blockchain technology can enable enhanced rule-enforcement at an infrastructure-level, allowing data and workflows to travel with the asset. We believe that by testing the tokenization of private assets, we are exploring the feasibility to open-up new operating models and create efficiencies for the broader market.
The Head of Business Development, Digital Assets at WisdomTree, Maredith Hannon Sapp stated:
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.
While tokenisation of traditional financial assets has been a topic of considerable interest in Australia, the Government has been slow in following peer jurisdictions in exploring the benefits of tokenisation for traditional markets.
In successfully completing its proof of concept, Citi joins a number of market leaders like BlackRock and State Street in exploring the use of blockchain for tokenising private assets. Citi has estimated that asset tokenisation in private markets could be a $4 trillion market by the end of the decade. The race is on to establish fit for purpose regulatory frameworks, standards and processes to facilitate this future.
By Michael Bacina, Steven Pettigrove and Luke Misthos