Citi, in collaboration with WisdomTree and Wellington Management, has completed a proof of concept for the tokenisation of private funds. The bank claims the exercise has demonstrated that “smart contract capabilities could deliver new functionality and operational efficiencies, which are currently unavailable with traditional assets”.

Citi revealed in a statement that it expects these new functionalities to enable both buy- and sell-side institutions to “engage with distributed ledger infrastructure in a low-risk, low barrier-to-entry manner that is consistent with regulations”.

Team effort

The proof of concept brought a private equity fund issued by Wellington into a DLT network to simulate its tokenisation. ABN AMRO played the role of a traditional investor. The underlying fund distribution rules were encoded into the smart contract and embedded into the token, which was then transferred to hypothetical WisdomTree clients.

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In addition, the experiment also involved “multiple scenarios of transfers using smart contracts”. These used simulated identity credentials issued by WisdomTree and a private fund token as collateral in an automated lending contract with DTCC Digital Assets.

Better understanding

Citi claimed that the proof of concept allowed it to better understand how to support clients in issuing and accessing tokenised private assets in a “controlled and scalable manner, while ensuring interoperability with the traditional ecosystem”. Overall, the exercise demonstrated that smart contracts “could be used to enable greater automation and potentially create an enhanced compliance and control environment for issuers, distributors, and investors”.