Citi’s Big Bet: Inside the Private Fund Tokenization Proof-of-Concept

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TL;DR,

 

 

• Citibank’s private fund tokenization POC on Avalanche Spruce simulates the full lifecycle of a private equity fund in the $10T private assets market, testing issuance, secondary trading, and collateralized lending with automated, on‑chain compliance.
• Citi, Wellington, WisdomTree, ABN AMRO, and DTCC Digital Assets used Avalanche’s permissioned Spruce subnet to show how tokenized private funds can streamline subscriptions, transfers, and collateral, while keeping identity and regulations baked into smart contracts.
• The experiment highlights a broader institutional DeFi trend: moving complex, illiquid private funds onto programmable rails that promise faster workflows and new use cases, but still face production‑level challenges in security, legal finality, and interoperability.

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Citibank goes knee-deep into incorporating blockchain, recently completing a proof‑of‑concept (POC) for private fund tokenization on Avalanche’s permissioned Spruce subnet. Working alongside Wellington Management, WisdomTree, ABN AMRO, and DTCC Digital Assets, the bank simulated the complete lifecycle of a tokenized private equity fund.

A technology that created an entire new asset class has broken boundaries yet again in the $10 trillion private assets market.

Citi’s proof‑of‑concept on private fund tokenization: what was tested on Avalanche Spruce

Private equity funds are notoriously manual, opaque, and slow. Subscription processes can take weeks. Compliance checks require mountains of paperwork. Secondary transfers are complex and restrictive. Capital calls, distributions, and investor reporting all rely on legacy systems that haven’t fundamentally changed in decades.

So Citibank wanted to test how blockchain, a technology well known for its immutability, automation, and speed, could change things up.

On April 26, 2023, Avalanche launched a testnet, the Spruce institutional testnet, specifically for buy- and sell-side financial institutions. Spruce offers multi-level permissioning, EVM compatibility, and custom (non-crypto) gas fee structures. These addressed concerns over control, compliance, and cost predictability.

Wellington Management acted as the fund issuer, Citi served as the issuer’s agent, WisdomTree functioned as the wealth platform, ABN AMRO simulated the role of a traditional investor, and DTCC Digital Assets provided the lending infrastructure.

The entire scenario tested three distinct scenarios:

End-to-end token transfer: ABN AMRO’s wealth management arm instructed Citi to tokenize and transfer a Wellington-issued private equity fund to a WisdomTree client wallet. The smart contracts are then automatically enforcing encoded compliance checks and identity credentials issued by WisdomTree and Tokeny.

Secondary market trading: Two WisdomTree clients executed a bilateral transfer of the tokenized fund. They also relied on automated compliance verification embedded in the smart contract.

Collateralized lending: Using DTCC Digital Assets’ Composer platform, an investor pledged tokenized private equity fund shares as collateral to borrow WisdomTree Money Market fund tokens. It was basically a test to see how tokenization might unlock new use cases beyond simple ownership transfer.

Private fund tokenization was a daring play for Citibank in understanding how far blockchain could stretch.

Citi’s Nisha Surendran stated

Smart contracts and blockchain technology can enable enhanced rule enforcement at an infrastructure level, allowing data and workflows to travel with the asset. 

Mark Garabedian, Director of Digital Assets and Tokenization at Wellington Management, framed the value proposition clearly:

“Making analogue processes that could take weeks or months into instant atomic processes really breaks down the frictions, which we can pass on as investment outperformance to our clients.”

Why Avalanche’s Spruce for Institutional Blockchain Adoption

The private fund tokenization plan heavily relied on Avalanche. Spruce, the platform’s evergreen initiative, is a dedicated institutional L1 deployment (formerly subnets) that borrows strengths from public networks while adding enterprise controls.

Some of its key features include multi‑level permissioning, EVM compatibility, and the option for custom, non‑crypto gas fees. These ultimately enabled Citibank’s POC team to test real workflows, identity checks, and transfer restrictions without exposing experiments to public‑chain uncertainty.

Ava Labs has argued Evergreen’s hybrid approach avoids walled gardens while preserving the customization and control institutions need. Morgan Krupetsky at Ava Labs noted the growing use of Avalanche by firms like Citi, Wellington, WisdomTree, and DTCC Digital Assets as evidence of momentum.

Benefits and trade‑offs you should weigh

Citibank’s digital asset strategy focuses on bridging the gap between crypto and institutional participation. It’s basically gunning for the institutional DeFi market. While the private fund tokenization was merely a test, it does provide various benefits of tokenizing private equity.

For instance, its automated compliance provides a “compliance by design” by default. This basically allows easier adoption and development of regulatory policies. As Citi’s testing shows, institutions can design tokenization systems that enhance rather than circumvent compliance.

Additionally, opting for a permissioned subnet over mainnet highlights what institutions actually need: control, compliance automation, predictable costs, and privacy. Pure decentralization is less important than hybrid models that balance innovation with regulatory requirements.

Ultimately it’s a steady shift from theoretical to practical. However, we must point out it’s still a testnet. No real assets, no legal finality, and no live secondary market liquidity were tested. Security is also another concern, but proof-of-concept is not proof of production viability. Legal frameworks remain unsettled. Technology risks—smart contract vulnerabilities, custody solutions, and identity standards—require further work.

Citi’s report framed the potential succinctly: tokenization could transform how private market assets are held and transacted, but it requires new rails for data, privacy, and servicing.

Where this fits in institutional DeFi

This POC sits in a broader push to apply DeFi‑era automation in regulated, permissioned contexts. Market response suggests investors noticed: AVAX rose roughly 22% on Nov 15, 2023, and another ~21% on Nov 16, with trading volumes jumping (CoinGecko). After Citi’s Feb 14, 2024 announcement, Talos reported AVAX led L1s with a 19.8% weekly gain—during an already positive crypto backdrop.

Ecosystem capacity is relevant. Reports have cited Avalanche handling 40–50 million daily transactions, with recent months showing a 22% increase in active addresses and a 201% rise in transaction volume. Yet retail‑side activity also cooled at points: active C‑Chain addresses fell to 31,000 in 2024, which helps explain Avalanche’s strategic pivot to institutions.

On fundamentals, Avalanche’s DeFi TVL was ~$650M in mid‑Nov 2023 (stablecoin market cap $1.35B), with Aave, Benqi, and Trader Joe among the leaders.

The Citibank digital asset strategy focuses on institutional blockchain adoption.

Citi’s focus on illiquid private funds sets this effort apart. While other institutions targeted liquid instruments (bonds, money markets, repos), this POC tackled a complex, high‑friction asset class (~$10T market). It also spanned full‑lifecycle workflows—issuance, primary and secondary transfers, and collateralization—while keeping identity and compliance central. That design choice aligns with a pragmatic Citibank digital assets strategy: build in a low‑risk, permissioned environment that can interoperate with traditional systems.

The ultimate test is whether tokenization can deliver meaningful cost savings and experience improvements that justify the transition costs. But in traditional finance, moving from “Can we do this?” to “Should we do this at scale?” is where innovation often stalls.