Tokenization has been a topic of industry conversation for years, but where exactly are we on the adoption curve today? We are transitioning from the experimental phase into real-world application. Nadine Teychenne, Head of Tokenized Securities and Crypto Assets at Citi Services, shares what live production use cases are emerging in the asset management sector.
Current state of tokenisation
Recently, U.S. asset managers have commenced issuing tokenised money market funds on blockchain platforms. The industry has seen over 30 such funds come into existence, signifying a substantial move towards operational use. Citi is also actively participating by offering tokenised deposits internally, allowing for seamless 24/7 liquidity movement for clients since 2024. Additionally, Citi recently managed the issuance and custody of a pre-IPO share via the Swiss Digital Exchange, further exemplifying the growing advocacy for digital platforms.
The evolution in regulatory landscapes, particularly in the US, UK, and Europe, is also a catalyst for widespread adoption, providing the much-needed clarity and framework for tokenisation.
Tokenisation transforming illiquid assets
Tokenisation is impacting traditionally illiquid assets, like private shares, by facilitating their move into a digital space. Companies remain private longer, yet the trading of their shares remains cumbersome and costly due to illiquidity. The proposition that tokenisation offers is to democratise these assets, delivering them into an investor's hands more seamlessly. An example of this is Citi's work with the early-stage investor company, Kaleido. Through tokenisation, a depository receipt wrapper was created, leading to a fractionaliaed ownership model that introduces liquidity and a secondary market for private market assets.
How tokenisation enhances asset utility
Digitisation through tokenisation transforms asset utility, particularly in treasury and collateral management. The automated nature of tokenised assets (encompassing smart contracts) streamlines the asset lifecycle, cutting down on operational costs. The 24/7 transference capability allows for more efficient collateral usage, reducing end-of-day balance sheet constraints and capital costs. For treasury operations, enabled 24/7 cash movements enhance corporate liquidity management at a global scale, addressing previously encountered limitations and inefficiencies.
On-chain monetary landscape and Citi's role in it
The transition into a digitally tokenised world requires an effective settlement mechanism. Stablecoins, once primarily used for crypto trading, along with prospective Central Bank Digital Currencies (CBDCs), can play pivotal roles in settling tokenised securities. Institutions are increasingly exploring tokenised deposits as a means to complement stablecoins and CBDCs.
Within this context, Citi's involvement is significant, having implemented tokenised deposits across five markets for both USD and Euro in 2024. This initiative facilitates substantial daily asset movement and bridges traditional financial systems with blockchain solutions, proving essential for enhancing liquidity and supporting institutional operations.
Tokenisation is redefining asset management, providing innovative solutions to long-standing industry challenges. As the landscape continues to evolve, stakeholders are encouraged to explore these developments to align with the strategic interests of the asset management community.
