Citi offers blockchain fractional bond custody and tokenized deposits

American investment banking giant Citigroup has become the first digital custodian for BondbloX, the world’s first fractional bond exchange.

Launched in 2020, BondbloX (BBX) leverages blockchain to make the complex trading of bonds faster, cheaper, and more accessible. Accredited investors can invest as little as $1,000 to purchase fractional bonds; full-sized bonds are usually worth more than $200,000.

BondbloX first partnered with Citi in 2021, with the bank serving as a digital custodian for full-sized bonds. Citi now custodies the fractional bonds, unlocking new opportunities for its clients and other BBX participants.

“This proprietary digital custody technology is scalable and will allow us to provide settlement and custody services for clients investing in assets issued on permissioned blockchain networks and digital FMIs,” commented Nadine Teychenne, Head of Digital Assets for Citi Securities Services.

“It enables Citi to connect to newly permissioned networks as they emerge and provide a fully consolidated custody service through a single operating model.

Bond trading remains slow, tedious, and exclusionary. Bond trades take two business days to settle in most markets, and with the minimum investment being usually over $200,000, it’s a market reserved for professional investors.

Blockchain technology can revolutionize the market, making it more efficient, faster, and inclusive. Fractional investment, in which a bond is broken down into smaller and affordable tokens, allows the participation of smaller investors, while atomic swaps through smart contracts cut down the settlement period to minutes.

As a pioneer in this field, BondbloX allows investors to access the bonds on their web and mobile devices after they open an account through their banks or investment advisors. The Singaporean company, which most recently raised $10 million, is regulated by the Monetary Authority of Singapore (MAS) and graduated from its sandbox in 2020.

“Digital Custody is the next big step in the transformation of the bond market, making bond markets, more transparent, electronic and accessible to all. Now, bonds are more easily accessible to everyone,” commented BBX CEO Rahul Banerjee.

Citi launches tokenized deposits for institutional clients

Citi’s foray into digital assets continued with the launch of blockchain-powered tokenized deposits for its rich clients.

Citi Token Services will transform clients’ deposits into digital tokens on the blockchain. The clients can then transfer these tokens instantly to any part of the world, potentially cutting down on the time and cost of cross-border transfers.

International funds transfers take up to five days and remain costly for clients. They are also affected by public holidays and the different time zones.

“With the new service, if it’s … 5:00 p.m. in the U.S. and 5:00 a.m. in Singapore, but you need to get money there, you can send that immediately, within seconds,” commented Citi’s head of digital assets, Ryan Rugg.

Citi’s new service relies on smart contracts that self-execute to automate the transfer process once pre-determined conditions are met. The New York bank tested its smart contracts in a pilot with Danish shipping conglomerate A.P. Møller–Mærsk. Citi pre-funded a smart contract with its digitized tokens, which Mærsk then used to pay out for ancillary services to canal and maritime authorities.

Previously, Mærsk had to carry letters of credit from Citi to pay for services such as fuelling. The service providers would then present the letters of credit to local Citi branches and get paid, a process that took days.

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