Citi expands digital asset services with blockchain-based deposit token

Citibank branch.

Citi has developed a blockchain-based product that lays a foundation for digital asset services and furthers the bank’s development of real-time payment and cash management solutions.

Citi Treasury and Trade Solutions launched Citi Token Services on Monday, allowing institutional clients to complete cross-border payments, manage liquidity and support trade finance 24/7, as demand for “always-on” capabilities has steadily accelerated since Covid-19, said Stephen Randall, global head of liquidity management services.

“We continue to see the evolution of real-time liquidity and real-time treasury requirements,” Randall said. “This was one of the capabilities we developed that would facilitate what our clients need. Our clients are in an ever-evolving environment which is moving more and more to digitalization due to their business models changing, or their clients’ business models changing, and have a need for real-time liquidity.”

Tokenization and blockchain technology have become more popular with traditional banks as demand for instant solutions rises, and chatter around regulation grows louder. Timothy Massad, who previously served as chairman of the U.S. Commodity Futures Trading Commission, said blockchain technology can help banks enhance services they’ve traditionally offered, but the industry must balance between the risks with the advantages. 

Citi’s bank’s institutional clients can use the token service to turn deposits into tokens and send them across borders and bank accounts at any time on Citi’s private, Ethereum-based blockchain rails. The service can also optimize trade finance, a traditionally paper-ridden business, by replacing letters of credit and bank guarantees with smart contracts that automatically release payments once set conditions are met. 

Ryan Rugg, global head of digital assets in Citi’s treasury and trade division, said the bank will continue to add to its smart contract library to expand trade finance functions it can offer. In a pilot test, the service allowed international shipping company Maersk to transfer tokenized deposits to instantly pay service providers. The bank said the digital process can compact process times from days to minutes.

Citi Token Services is designed so clients don’t need to set up wallets or hold tokens, Rugg said, to limit additional governance and accounting decisions. Randall said Citi developed the solution over the last year and prioritized trade finance and cash management use cases based on demand from clients. Rugg added seamless integration for clients was the key component of developing the technology.

Massad said tokenizing money can increase efficiency, and be easier to track than traditional processes.

“It’s clear there’s room to make cross border payments more efficient than they are,” Massad said. “Tokenized money has potential in terms of not only efficiency but programmability.”

Citi also recently collaborated on researching the feasibility of the Regulated Liability Network, a shared distributed ledger technology concept to facilitate interoperable wholesale payments across entities.

Massad, who is currently a research fellow at Harvard University’s Kennedy School of Government, added that there are many questions about how to make the best use of blockchains. He said that while decentralized blockchains offer the potential for better interoperability and accessibility, they also introduce risk and governance concerns.

“The future of this technology is about tokenizing things that have real value, as opposed to a lot of the tokens we’ve seen today,” Massad said. “Whether that’s tokenized deposits or tokenized stocks, bonds or real estate, there are going to be issues with respect to…how do we then record those and how do they get transferred?”

Citi Token Services’s blockchain also gives base functionality for other potential digital asset solutions at the bank down the line, Randall said. Rugg added that its rails could run stablecoins, crypto or other tokenized assets down the line, if approved by regulators. 

Rugg said that the ability to tokenize assets like equities and bonds is the “holy grail.”

“I think we’re at an inflection point,” Rugg said. “[We’re] making sure that we future-proof that infrastructure so that if regulation does change and starts approving that, and our clients want to use it, we have the platform built out in a safe and sound way.”

Massad said that as the amount of regulator conversations around stablecoins increase, banks are developing technology so they aren’t left behind. He added it’s a good thing that banks like Citi are working on innovation in this space. JPMorgan is also developing a blockchain-based deposit and settlement tokenization service similar to Citi’s, Bloomberg reported last week.

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