Major banks embrace tokenization: Citigroup explores blockchain implementation

Major banks worldwide are venturing into tokenizing real-world assets in a significant move within the crypto industry. Citigroup Inc., a prominent player in the financial sector, has undertaken a simulation to explore the potential of tokenizing private equity funds on the Avalanche blockchain network.

Citigroup’s exploration of tokenization

Citigroup’s simulation demonstrates how blockchain technology can facilitate the tokenization of private equity funds, potentially revolutionizing Wall Street’s approach to distributed ledger technology. This initiative marks a pivotal moment in adopting blockchain within traditional financial institutions.

The initiative by Citigroup comes in the wake of increasing acknowledgment of blockchain’s legitimacy within the banking sector. In September 2023, Citigroup launched a digital-asset service in collaboration with Trade Solutions and Maersk, offering blockchain-based digital services to institutional clients. This move underscores a broader trend of banks recognizing the value and potential of blockchain technology.

The approval of 11 spot Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) in January 2023 has further propelled the adoption of blockchain and digital assets by major financial institutions. 

This regulatory approval has empowered asset management firms like BlackRock and Grayscale to offer spot Bitcoin ETF products to their clients, signaling a shift in the traditional financial landscape.

The future of crypto through tokenization

Staci Warden, CEO of Algorand, believes that tokenization holds the key to ensuring the survival and growth of the crypto industry. Tokenization allows various asset types, including real estate, art, precious metals, cars, and carbon credits, to be represented on blockchain networks, thereby enhancing liquidity and accessibility.

Market analysis by Markets and Markets forecasts the global tokenization market to reach $5.6 billion by 2026, with North America currently leading in market share. This projection reflects the growing interest and investment in blockchain-based solutions across various industries.

Global adoption and Interoperability

The adoption of blockchain solutions is not limited to North America. In September 2023, the Australia and New Zealand Banking Group (ANZ) announced its adoption of Chainlink’s cross-chain interoperability protocol (CCIP). This move facilitates tokenized asset purchases and highlights the global trend toward embracing blockchain technology in banking and finance.

However, regulatory bodies like the Hong Kong Securities and Futures Commission (SFC) are outlining potential requirements for tokenizing investment products. Tokenization of investment products involves the creation of blockchain-based tokens representing ownership in investment vehicles, prompting regulatory scrutiny and the need for clear frameworks to ensure investor protection and market integrity.