Citigroup uses Avalanche to transform the private equity industry

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American banking giant Citigroup successfully tested the possibility of tokenizing private and venture funds. He used the Avalanche testnet and found that smart contracts can offer new functionality and efficiencies not seen in the traditional private market.

According to what was reported by the bank, which has a capitalization of more than USD 88,000 million, it was a proof of concept. This was carried out in the testnet Avalanche Sprucedeveloped by the Avalanche Foundation, which is behind the homonymous cryptocurrency recognized by the ticker AVAX. Investment management firms Wellington Management and WisdomTree also participated in the project.

The proof of concept focused on simulating the tokenization of a private equity fund at Willington Management, brought to a DLT network. The underlying fund distribution rules were coded into the test smart contract and were entered into the token transferred to the simulation clients. In this case, WisdomTree.

The test, Citigroup says, “demonstrated how smart contracts could be used to enable greater automation and potentially create an improved compliance and control environment for issuers, distributors and investors.”

A smart contract is a computer program whose task is to articulate, verify and execute an agreement between the parties. The difference with a traditional contract is that these are written on paper. While the terms and conditions of smart contracts They are expressed in a computer code.

A manual market with a lack of transparency and standards

According to Citigroup, a bank with a broad presence in Latin America, the proof of concept with Avalanche focused on finding a way to optimize the reality of current negotiations of private equity funds in the traditional market.

The bank recognizes that although these funds are a $10 trillion asset class, they are characterized by complex and manual infrastructure, with lack of standardization and transparency. “Which leads to inefficient distribution and operations,” says Citigroup.

In this sense, Nisha Surendran, leader of emerging solutions at Citi Digital Assets, assessed that the use of smart contracts and the tokenization of private equity funds explore “the viability of opening new operating models and creating efficiencies for the market in general. ”.

Furthermore, because legislation regarding smart contracts and Bitcoin technology still remains in a gray area In most of the world’s jurisdictions, the US bank clarified that they explore “how to support clients who issue and access tokenized private assets in a controlled and scalable manner, while ensuring interoperability with the traditional ecosystem.”

Citigroup took advantage of the Avalache testnet to do other experiments. In this case, multiple transfer scenarios were evaluated using smart contracts based on simulated identity credentials and using a tokenized private fund as collateral in an automated loan contract.

This is not the first time that Citigroup has been involved with the bitcoin (BTC) ecosystem and cryptocurrencies. This is one of the renowned banking institutions that more has been linked to the emerging sector.

Recently, the banking giant launched the Citi Token Service, which is based on allowing clients to make scheduled transfers of tokenized deposits, guaranteeing instant payments and their operation all day.

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