Wall Street Giants Test Private Equity Tokenization on Blockchain

Key points:

• Citigroup simulated blockchain tokenization of a private equity fund.
• This test used Avalanche’s platform to demonstrate compatibility with banking systems.
• Investigated tokenized funds as collateral for loan contracts.

According to Bloomberg, Citigroup has been testing private equity tokenization on the Avalanche blockchain to explore its potential for banking services.

Citigroup Inc. conducted a simulation showing how private equity funds could be tokenized on a blockchain network. Simulation can drive broader adoption of distributed ledger technology in the financial sector.

Citigroup’s Private Equity Tokenization Simulation

Working with Wellington Management and WisdomTree, Citigroup conducted a ‘proof of concept’. This demonstrated the feasibility of issuing and administering services for tokenized versions of private equity funds on behalf of clients.

Importantly, the process is compatible with existing banking systems and these simulations can simplify the integration of blockchain technology for institutions and ensure compliance with financial regulations.

Banks such as Citigroup and JPMorgan Chase have been exploring ways to integrate blockchain technology into their current infrastructure, attracted by its benefits such as increased transparency and instant transaction settlement.

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Potential use of tokenized private equity in lending agreements

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

Fund distribution rules are built into the underlying smart contract to direct token splitting and transfer to simulated WisdomTree clients. The project also investigated the use of private equity tokens as collateral in automated lending contracts.

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