The world of private markets is undergoing a quiet revolution—driven by blockchain technology and the growing momentum behind asset tokenization. Financial institutions like Citi, Wellington Management, WisdomTree, and Hamilton Lane are pioneering proof-of-concepts and real-world deployments that demonstrate how digital assets can bring transparency, efficiency, and broader access to traditionally illiquid and complex investment vehicles.
Private markets have long been criticized for their opacity, manual processes, and limited accessibility. With settlement times stretching weeks or months and investor onboarding mired in paperwork, these markets stand to gain the most from digitization. Tokenization—the process of converting ownership rights into digital tokens on a blockchain—offers a transformative solution. By enabling instant settlement, automated compliance, and fractional ownership, it promises to unlock new levels of liquidity and operational efficiency.
How Citi Is Testing the Future of Fund Tokenization
In a landmark proof of concept conducted on the Avalanche Spruce institutional test Subnet, Citi collaborated with fund managers Wellington Management and WisdomTree to tokenize private equity funds. The experiment simulated end-to-end workflows using distributed ledger technology (DLT), smart contracts, and digital identity credentials.
Wellington issued a private equity fund on-chain, while ABN Amro played the role of a traditional investor. Smart contracts encoded the fund’s distribution rules—such as jurisdictional eligibility and investor accreditation—ensuring compliance was "baked in" at the protocol level. These tokens were then transferred to hypothetical WisdomTree clients, demonstrating secure, permissioned asset transfers.
Nisha Surendran, Emerging Solutions Lead at Citi Digital Assets, emphasized that the goal was not just technical validation but also assessing the legal and operational frameworks required for regulated tokenized assets.
“We wanted to test our smart contract rules and conditions to enforce compliance by design and to enable permissioned distribution,” Surendran explained.
This collaboration provided Citi with critical insights into asset managers’ perspectives on scalability and compliance. Wellington brought deep technical expertise in blockchain experimentation, while WisdomTree contributed real-world experience from launching early digital funds—giving Citi a 360-degree view of production-grade implementation challenges.
Real-World Use Cases: From Distribution to Collateral Mobility
Beyond simple digitization, the focus has shifted toward high-value use cases that go beyond what traditional systems can support. These include:
- Automated securities lending: Using tokenized private funds as collateral in lending agreements.
- Cross-chain transfers: Enabling investors to move assets across networks with embedded compliance rules.
- Identity-based access control: Wallets receiving verified credentials from regulated platforms like WisdomTree.
In one scenario, WisdomTree tested using a tokenized private fund as collateral to borrow tokens representing shares in its money market fund—all executed via smart contracts without intermediaries.
Mark Garabedian of Wellington Management noted that the Avalanche Spruce network served as an ideal sandbox for exploring these innovations in a controlled environment.
Meanwhile, DTCC’s Nadine Chakar highlighted the broader industry potential: “Digital asset technology offers exciting possibilities to build a more resilient, integrated financial ecosystem where blockchain and legacy systems coexist seamlessly.”
The Power of Programmable Assets and Money
Surendran stressed that operational efficiency alone isn’t enough to justify widespread adoption. The true value lies in enabling capabilities that are impossible today—like secondary trading in private funds or real-time collateral reuse.
“Tokenization will become valuable when it allows investors to do new things they can’t do in traditional form.”
For instance, private equity investors typically commit capital for 10–12 years with no exit options. With tokenization, partial exits or intra-fund transfers could become feasible, increasing flexibility and appeal.
But this future depends on programmable money—such as central bank digital currencies (CBDCs), tokenized deposits, or regulated stablecoins—that can settle atomically with tokenized assets. Without synchronized settlement rails, the benefits of instant transfer are undermined by delays in valuation data (e.g., NAVs) or payment finality.
Hamilton Lane: Bringing a $3.8B Fund On-Chain
One of the most tangible examples of progress is the tokenization of Hamilton Lane’s $3.8 billion Global Private Assets Fund (GPA Fund) based in Luxembourg. Partnering with Swiss digital asset bank Sygnum and Apex Group, new shares of the fund are now being issued on the Polygon blockchain.
This initiative slashes minimum investment thresholds through fractional ownership, making elite private market strategies accessible to a wider pool of institutional and professional investors.
Fatmire Bekiri, Head of Tokenisation at Sygnum, called it a “significant breakthrough”:
“The new DLT-registered share class marks the first entry in Apex’s on-chain share register—ushering in a new era of transparency and efficiency.”
Key advantages include:
- Automated share registry and transfer agent functions
- Streamlined KYC/AML compliance
- Immutable audit trails
- Reduced settlement friction
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Challenges to Overcome Before Mainstream Adoption
Despite promising pilots, several hurdles remain before tokenization becomes standard practice:
Regulatory Alignment
Global consistency in regulation is lacking. Different jurisdictions treat security tokens differently, complicating cross-border offerings. Clear guidance is needed on tax treatment, investor protections, and anti-money laundering (AML) enforcement within smart contracts.
Identity Standards
Reliable digital identity frameworks are essential for permissioned access. As Surendran noted, institutions must be able to trust KYC credentials issued by other regulated entities—requiring interoperable standards.
Data Integration
Private fund valuations aren’t updated in real time. To use tokens as collateral effectively, NAV data must be reliably posted on-chain through trusted oracles.
Ecosystem Coordination
Technology isn’t the bottleneck—it’s coordination. As Surendran put it:
“Wrapping an asset as a token is straightforward. The challenge is aligning digital documentation, data flows, and automated servicing across stakeholders.”
FAQ: Understanding Tokenization in Private Markets
Q: What is asset tokenization?
A: It’s the process of representing ownership of real-world assets—like private equity funds—as digital tokens on a blockchain, enabling easier transfer, automation, and fractional investment.
Q: Why tokenize private market funds?
A: To improve liquidity, reduce settlement times, automate compliance via smart contracts, lower entry barriers through fractionalization, and enable innovative use cases like collateralization.
Q: Are tokenized funds regulated?
A: Yes—when issued properly, they fall under existing securities laws. Regulators like the SEC and EU authorities are actively shaping frameworks for digital assets.
Q: Can individual investors participate?
A: Currently, most tokenized private funds are available only to institutional or accredited investors due to regulatory requirements.
Q: Is blockchain secure for financial assets?
A: Permissioned blockchains used by banks and asset managers offer high security, auditability, and control—especially when combined with strong identity verification.
Q: What role do smart contracts play?
A: They automate fund rules (e.g., redemption rights, investor eligibility), enforce compliance programmatically, and enable self-executing transactions like dividend payouts or lending.
The Road Ahead
Citi sees significant potential across digital money, trade finance, securities, custody, asset servicing, and collateral mobility. Internal and external pilots in cash and trade tokenization are already underway.
While full-scale adoption will take time, 2025 is expected to bring meaningful progress—driven by collaboration among banks, fund managers, infrastructure providers, and regulators.
“The proof of concept was a big step for us,” said Surendran. “We believe real-world deployment of tokenized assets is within reach.”
With continued innovation and alignment across the ecosystem, tokenization could soon transform private markets from closed clubs into dynamic, accessible financial ecosystems.
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