Citigroup has carried out a simulation to explore how a private equity fund could be tokenised on a blockchain network, working with investment firm Wellington Management and ETF sponsor WisdomTree to carry out its “proof of concept”, according to a report by Bloomberg.
The simulation tokenised and custodied a hypothetical Wellington-issued private equity fund using blockchain technology provided by smart contracts platform Avalanche. Fund distribution rules were encoded into the underlying smart contract, which automatically dictated how tokens were split and transferred to simulated clients at WisdomTree.
According to the report, the project reveals it is possible to issue tokenised versions of private equity funds on behalf of clients in a controlled environment, while remaining compatible with existing bank systems.
Puneet Singhvi, Managing Director and Head of Digital Assets at Citi, said that simulations like this could make it easier for institutions to incorporate blockchain technology while remaining compliant with financial regulations.
Singhvi added that the results of the simulation will be used to ascertain whether services should be introduced in this area. The project also explored the use of a private fund token as collateral in an automated lending contract with the Depository Trust and Clearing Corporation (DTCC)’s digital assets unit, according to Singhvi.
Last September, Citi launched a digital assets service for institutional clients, intended to change customer deposits into tokens that can be sent anywhere in the world.
Other banks like JPMorgan Chase have looked to incorporate blockchain technology in existing infrastructure due to its greater transparency and the ability to settle transactions instantly. Citi’s simulation follows renewed interest in the cryptocurrency market as demand from recently approved ETFs has pushed bitcoin’s price to its highest since December 2021.
