Citi Bank, WisdomTree, and Wellington Lead the Way in Tokenization on Avalanche
On February 14, 2024, Citi Bank made history by conducting a groundbreaking proof of concept in collaboration with Wellington Management and WisdomTree. The project focused on tokenizing private funds and took place on the Avalanche Spruce institutional test Subnet, showcasing the potential of smart contracts to revolutionize traditional assets.
The proof of concept aimed to address the challenges associated with the $10 trillion asset class of private funds, which is known for its complex infrastructure, manual processes, and lack of standardization and transparency. By partnering with WisdomTree and Wellington Management, Citi Bank conducted a trial on Avalanche’s Spruce Subnet, demonstrating the capabilities of smart contracts to introduce new functionalities and operational efficiencies not currently available with traditional assets.
Mark Garabedian, the Director of Digital Assets & Tokenization Strategy at Wellington Management, praised the technical sandbox environment provided by Avalanche Spruce, stating that it proved to be an ample testing ground for the project. Maredith Hannon Sapp, Head of Business Development, Digital Assets, at WisdomTree, also acknowledged the proof of concept’s potential to explore the transferability of tokenized funds and compliance in different markets.
In addition to Citi Bank, other traditional finance firms such as T. Rowe Price, WisdomTree, Wellington Management, and Cumberland joined the Spruce Subnet to improve trade execution and settlements.
During the proof of concept, Citi Bank carefully evaluated the technical, legal, and operational frameworks required to transition traditional assets to a digital platform. Smart contracts played a crucial role in encoding the underlying fund distribution rules and embedding them in the token transferred to hypothetical WisdomTree clients. This experiment showcased the ability of smart contracts to enhance automation, creating an advanced compliance and control environment for issuers, distributors, and investors.
Nisha Surendran, the Emerging Solutions Lead for Citi Digital Assets, emphasized the potential of smart contracts and blockchain technology to enable enhanced rule enforcement at an infrastructure level. This allows data and workflows to travel with the asset, improving efficiency and transparency.
Various transfer scenarios were evaluated using smart contracts and simulated identity credentials issued by WisdomTree. For example, a private fund token was used as collateral in an automated lending contract with DTCC Digital Assets. By tokenizing private funds, existing inefficiencies in private markets can be addressed, leading to enhanced automation and improved compliance.
Citi Bank’s successful proof of concept on the tokenization of private funds using Avalanche’s Spruce Subnet is a significant milestone in the financial industry. It demonstrates their commitment to exploring the tokenization of private assets and their willingness to bridge traditional finance with unconventional finance models like digital assets, crypto, and tokens. This opens up new operating models for the broader market.
Tags: Blockchain