Wall Street Giants Test Private Equity Tokenization On Blockchain

Key Points:

• Citigroup simulated blockchain tokenization of private equity funds.
• The trial used Avalanche’s platform, showing compatibility with banking systems.
• Tokenized funds as collateral for lending contracts were explored.

According to Bloomberg, Citigroup tested private equity tokenization on the Avalanche blockchain, exploring its potential for banking services.

Citigroup Inc. has conducted a simulation demonstrating how a private equity fund could be tokenized on a blockchain network. The simulation could promote more widespread adoption of distributed ledger technology in the finance sector.

Citigroup’s Simulation of Private Equity Tokenization

In collaboration with Wellington Management and WisdomTree, Citigroup carried out a ‘proof of concept’. It demonstrated the feasibility of issuing and custodial services for tokenized versions of private equity funds on behalf of clients.

Importantly, the process remained compatible with existing banking systems, and such simulation could simplify the incorporation of blockchain technology for institutions, ensuring compliance with financial regulations.

Banks like Citigroup and JPMorgan Chase have been exploring the integration of blockchain technology into their current infrastructure, attracted by benefits such as increased transparency and instant transaction settlement.

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Potential Use of Tokenized Private Equity Funds in Lending Contracts

The results of the simulation will be used by Citigroup to assess the potential of offering services in this area. The bank’s recent test involved tokenizing a hypothetical private equity fund issued by Wellington, using blockchain technology provided by the smart contract platform, Avalanche.

Fund distribution rules were built into the underlying smart contract, dictating the division and transfer of tokens to simulated WisdomTree clients. The project also investigated the use of a private fund token as collateral in an automated lending contract.