Citi Taps Avalanche For Institutional Tokenization Trials

Citi, a “Big Four” bank boasting $759B in assets under management worldwide, is deepening its exploration of asset tokenization.

On Feb.14, Avalanche announced that Citi completed a pilot on one of its subnet testnets to explore permissioned tokenization trials with a focus on private markets. The trials were executed in partnership with select investment and wealth management clients including WisdomTree, Wellington Management, and ABN AMRO Bank.

“The bank tested use cases on Avalanche ‘Spruce’, an Evergreen testnet Subnet designed for buy-and-sell-side institutions,” Avalanche said in a blog post. “Citi… leveraged the Avalanche network to test how the combination of blockchain infrastructure, tokenization, and smart contract logic might help to re-architect capital markets and enhance financial services.”

Major institutions explore tokenization

The trials are the latest example of a major financial institution using distributed ledger technology to explore tokenization use cases. Migrating assets on-chain offers significant efficiency benefits, including reduced operational costs, increased transparency, and typically high levels of customization.

JPMorgan was among the first with the launch of Quorum, a permissioned fork of Ethereum, back in 2015, followed by its Onyx digital asset division and platform in 2020. Onyx has settled more than $900M worth of transactions and began working with Avalanche last year as part of a pilot with the Monetary Authority of Singapore exploring tokenization.

Other major financial firms diving into tokenization include HSBC, BNY Mellon, Santander, and Franklin Templeton, among a plethora of others.

Citi said tokenization unlocks “new use-cases and digital distribution channels” for traditional markets, while also enabling novel operating models, data collection, and user autonomy.

Avalanche Spruce

Citi’s recent tokenization trials included end-to-end token transfers representing private equity, secondary tradinf, and collateralized lending via smart contracts leveraging the Depository Trust Clearing Corporation’s Digital Assets Composer.

The pilots also featured the use of “encoded compliance checks and identity credentials” issued by WisdomTree to test regulatory compliance processes.

Avalanche said Citi chose to use Spruce because of its customizable permissioning, Ethereum Virtual Machine compatibility, the ability to configure custom fee assets, and robust data collection features.

Spruce allows the collection and flow of both investor and issuer data in a secure and compliant manner. “Once on-chain, this data can be wrapped with the token and leveraged for novel use cases,” Avalanche said.

Spruce launched in late 2023 as a sandbox environment for institutional firms to explore tokenization and on-chain finance. Wellington Management, WisdomTree, and Cumberland were among the initial cohort of firms operating on Spruce.

“The Avalanche Spruce Subnet has enabled us to simulate transactions utilizing smart contracts, validate identity credentials for individual investors, and showcase the power of this technology with peer-to-peer transfers in a controlled environment on a blockchain network,” said Maredith Hannon Sapp, WisdomTree’s head of digital asset business development.