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Multinational financial services giant Citibank announced on Wednesday that it is experimenting with tokenized securities on the blockchain to bolster the adoption of distributed ledger technology on Wall Street.
Based on the results of the “simulation,” the bank will determine whether it plans to offer related blockchain-based services in the coming weeks.
Citibank Onboards The Blockchain
The bank collaborated with Wellington Management and WisdomTree – a crypto-supportive ETF sponsor – to initiate its “proof of concept” for the program.
The latest test, as reported by Bloomberg, tokenized a hypothetical Wellington-issued private equity fund on Avalanche – a smart contract platform whose native coin, AVAX, is the 10th largest crypto by market cap.
Avalanche has been the blockchain of choice for many firms breaking into tokenized securities, including Republic’s profit-sharing digital asset, Republic Note.
According to Citi, fund distribution rules have been baked into the underlying smart contract of Wellington’s fund, determining how tokens are split among WisdomTree clients.
It also tested how a private fund token could be used as loan collateral in an automated lending contract with the Depository Trust & Clearing Corporation’s crypto unit, according to Puneet Singhvi, Citi’s institutional head of digital assets.
The simulation proves that its possible to issue and custody tokenized assets on behalf of clients in a controlled environment while remaining compatible with legacy banking systems. It also provides a clear roadmap for how institutions can onboard blockchain in a regulatory-compliant manner, Singhvi said.
Building Blockchain-Based Securities
Last month, a group of former executives from Citigroup announced plans to issue Bitcoin Depository Receipts (BTC DRs) to global institutional investors. These would offer Bitcoin exposure to clients without need for registration under the Securities Act of 1933.
In September, the bank made history as the first digital custodian of the BondbloX Bond Exchange, which leverages blockchain to democratize access to bonds.
Data from Dune Analytics shows that tokenized securities now boast a $489 million market cap following a drastic rise in December.
Their dashboard indicates that the most popular tokenized securities today include the yield-bearing stablecoin protocol Mountain, alongside various tokens offering exposure to treasury bond yields.
In 2022, Franklin Templeton CEO Jenny Johnson described use cases for blockchain, including tokenized securities as a “sport changer” for the financial industry, while calling Bitcoin a “distraction” by comparison. Her views have since grown more optimistic on Bitcoin itself, however.