By Pradeep Saran, September 20,2023
Citi, the banking giant, has unveiled an enhanced suite of services designed for its institutional clients, harnessing the power of blockchain technology. The newly introduced “Citi Token Services” enable the tokenization of client deposits, facilitating instant cross-border transfers.
Ryan Rugg, the Global Head of Digital Assets for Citi’s Treasury and Trade Solutions business, emphasized the inefficiencies of maintaining cash buffers across multiple bank accounts in different regions for large multinational clients. With Citi’s innovative service, clients can swiftly transfer funds anywhere in the world, regardless of time zone differences.
One noteworthy development is the integration of smart contracts into Citi’s operations, streamlining trade processes. Smart contracts are self-executing programs that automatically activate when predefined contract conditions are met. Citi successfully tested this feature with Maersk, a major client in the shipping and logistics industry. They initiated a smart contract by pre-funding it with digital tokens. Once the canal authority had delivered the agreed-upon services, the smart contract autonomously executed the token payment. This automation has the potential to reduce transaction processing times from days to mere minutes, according to Rugg.
While the cryptocurrency market faces regulatory uncertainties and relatively stable prices, the concept of tokenizing real-world assets using blockchain technology has gained significant traction. Analysts, such as Bernstein, predict that financial incumbents seeking to modernize financial markets will need to embrace blockchain technology. They estimate that approximately $5 trillion worth of real-world financial assets will be tokenized on blockchains within the next five years.
Citi’s announcement is a significant milestone among financial institutions venturing into digital assets. Other players in the financial industry have also made strides in this direction. Investment manager Hamilton Lane has introduced three tokenized funds, while KKR has tokenized a portion of an equity fund through a partnership with Securitize. Franklin Templeton has launched a mutual fund that leverages blockchain for transaction settlement and ownership data recording. Additionally, JPMorgan Chase has unveiled Onyx, a bank-led blockchain platform focused on international trade.
Citi is presently utilizing a private blockchain for its new services. The future adoption of public blockchains by Citi or similar institutions will largely depend on evolving regulations. Rugg noted that they are open to exploring public blockchains if regulatory changes make them a viable option, but for now, they are adhering to permissioned blockchains.