Citi proof-of-concept shows private equity funds on Avalanche
Citigroup has partnered with Ava Labs, other traditional financial institutions and digital asset companies to develop a concept for tokenizing private equity funds. Despite the formidable legal and technical issues, Citi is confident that blockchain technology can transform the private equity industry.
The project used simulated workflows in a private equity fund funded by Wellington Management, with ABN AMRO as an investor, and the Wisdomtree platform simulated on the approved Avalanche Evergreen Spruce Subnet.
The partners experimented with modern contracts to enforce distribution rules for the same fund. They used various methods to verify the identities provided by WisdomTree and used the Private Fund Token as collateral in the automated loan agreement in partnership with DTCC Digital Assets. The resulting loan was then “subject to haircuts and collateral ratios based on the pool's parameters.” A CT report on the project says:
“Asset can be automatically divided, distributed and balanced by intelligent applications supported by real-time implementation.”
Tokenization unlocks value from standardization, automation and improved operating models, Citi said. However, legal issues such as the regulatory status of tokens, contractual rights, anti-money laundering and know-your-customer, and taxation remain prominent. Using more “mature” identity standards will be critical for private fund tokenization, as well as secure data flows to balance transparency and confidentiality.
Further, Citi said that in order to facilitate atomic deployment, it is necessary to work on technical issues such as end-to-end databases, end-to-end service delivery workflow and so on.
Related: Private equity tokens aim to bring greater liquidity, transparency and accessibility.
Although there is still work to be done, Citi concluded that blockchain technology could transform private equity markets through a dynamic onramp. The bank has been on tokenized assets, and especially private equity assets for some time, calling it a “killer use case” for crypto.
Citi worked with @Wellington_Mgmt, @WisdomTreeFunds and @The_DTCC_DA to demonstrate how private assets can be tokenized and open to new capabilities through smart contracts and blockchain technology. Learn more here: pic.twitter.com/kf3G26Fjm6
— Citi (@Citi) February 14, 2024
Hedge fund Brevan Howard and alternative investment manager Hamilton Lane have researched token operations similar to the Libre protocol on the Polygon network.
Wisdom and Wellington Management from T. Rowe Price Associates and Cumberland participated in an earlier project on Avalanche's Spruce subnet to test the use of blockchain for foreign exchange trading.
The Citi Token Services blockchain was created in September. It enables remittance and automated trade finance solutions for the bank's institutional clients.
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