Citi Bank, WisdomTree, and Wellington: Pioneering Tokenization on Avalanche

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On 14th February 2024, Citi Bank achieved a groundbreaking milestone by successfully conducting a proof of concept on the tokenization of private funds in collaboration with Wellington Management and WisdomTree. The initiative took place on the Avalanche Spruce institutional test Subnet, revealing the potential of smart contract capabilities to revolutionize traditional assets.

The proof of concept focused on the tokenization of private funds, a $10 trillion asset class characterized by complex infrastructure, manual processes, and a lack of standardization and transparency. 

Citi Bank collaborated with traditional finance giants WisdomTree and Wellington Management to carry out the proof-of-concept trial issued on Avalanche’s Spruce. The experiment, conducted on Avalanche’s Spruce Subnet, unveiled the capacity of smart contracts to deliver new functionalities and operational efficiencies not currently available with traditional assets.

Mark Garabedian, the Director of Digital Assets & Tokenization Strategy at Wellington Management gave words of compliment saying, “The Avalanche Spruce test network has proven to be an ample technical sandbox environment.”

Similarly, Maredith Hannon Sapp, Head of Business Development, Digital Assets, at WisdomTree affirmed that “This proof-of-concept showcases the ability to explore the transferability of tokenized funds and related compliance in different markets.”

TradFi firms such as T. Rowe Price, WisdomTree, Wellington Management, and Cumberland joined the subnet in April last year to make trade execution and settlements more efficient.

Citi Bank meticulously evaluated the technical, legal, and operational frameworks necessary for the transition of traditional assets to a digital platform. 

Smart contracts were employed to encode the underlying fund distribution rules and embed them in the token transferred to hypothetical WisdomTree clients. The experiment demonstrated how smart contracts could enhance automation, potentially creating an advanced compliance and control environment for issuers, distributors, and investors.

Nisha Surendran, Emerging Solutions Lead for Citi Digital Assets says, “Smart contracts and blockchain technology can enable enhanced rule-enforcement at an infrastructure level, allowing data and workflows to travel with the asset.”

Multiple scenarios of transfers were evaluated using smart contracts, leveraging simulated identity credentials issued by WisdomTree. A private fund token was used as collateral in an automated lending contract with DTCC Digital Assets (formerly Securrency).

The tokenization of private funds addresses existing inefficiencies in private markets, offering potential benefits such as enhanced automation and improved compliance. 

Citi Bank’s successful proof of concept on the tokenization of private funds using Avalanche’s Spruce Subnet marks a landmark move in the financial industry. Citi Bank’s commitment to exploring the tokenizing private assets signifies a step toward joining traditional finance with unconventional finance models like digital assets, crypto, and tokens, opening up new operating models for the broader market.