Some of the biggest names in banking have spent years dipping toes, if not diving headlong, into the blockchain race. JPMorgan, HSBC and Société Générale, to name three, have stood out with brand-name platforms Onyx, Orion and Forge, respectively. Asset-servicing leaders BNY, State Street and Northern Trust, the last with Matrix Zenith, are pushing into the digital-asset realm.
Citi, the fourth-largest U.S. banking organization and historically a new-technology early adopter, may be demonstrating that a second-mover strategy can also be a winning one.
In September 2023, Citi Treasury and Trade Solutions announced the creation and piloting of Citi Token Services, introducing the tokenization of deposits and smart contracts for institutional customers in cash management and trade finance.
By July this year, with Citi Digital Assets and Citi Innovation Labs “leading the charge,” the Citi Integrated Digital Assets Platform (CIDAP) was launched, listing such use cases as Citi Token Services for Cash, Citi Token Services for Trade Pilot, Private Fund Tokenization Proof of Concept, and, with BondbloX Bond Exchange, the first digital custody and settlement services for participants in that blockchain-based fractional bond exchange.
Citi’s Puneet Singhvi: “Open to anything crypto.”
“CIDAP is designed to facilitate a variety of digital-asset use cases in a secure and cohesive manner while uniquely covering a broad spectrum of functionality,” Puneet Singhvi, head of digital assets for the Institutional Client Group, has said. “CIDAP is built on open-source components and designed to be blockchain agnostic with extensibility in mind” and “could potentially integrate with multiple blockchain protocols.”
“We were a little late compared to other competitors,” Singhvi conceded in an interview, “but we’ve caught up pretty well.”
Ryan Rugg, head of digital assets in Treasury and Trade Solutions, gave a real-world example of Citi Token Services: Maersk needs to fulfill contracts in its cargo shipping operations. Financial guarantees are required to bring goods through canals. CTS automates this process with blockchain, also known as distributed ledger technology (DLT).
“We tokenized deposits,” Rugg explained. “We pre-funded a smart contract with these tokens. If the ship received fuel, and checks and balances were made, the funds were automatically released. Typically, these ships have to get banking guarantees between banking hours, or they can't pass through the canal, slowing down business. We’re starting to look at how this could apply to other industries.”
Citi has worked for about two years to implement the integrated set of capabilities and embed them into its lines of business, according to Singhvi. They cut across payments, trading, trade finance and securities services.
CIDAP connects products and services internally within Citi, and externally to different blockchain platforms. Executives said it was a challenge to make the various handoffs efficient while meeting anti-money laundering, know your customer, credit and other compliance requirements. CTS and CIDAP bring smart contracts, tokenization and 24/7 processing to help accomplish these tasks as part of Citi’s workflow.
CTS in particular makes it easier to send funds across borders.
“Payments and messaging in the same country are pretty efficient,” Rugg pointed out. “When you start sending money cross-border, you start getting the gaps and asking, ‘Did my money get there? Is my payment there?’”
For a transaction between New York and Singapore on a Friday, for instance, the time difference might push it into the weekend when markets are closed. Aside from possible changes in valuation, if a payroll or a tax deadline is involved, lateness can have other consequences. CIDAP and CTS make transactions instant, avoiding such pitfalls, Rugg said.
“How can you join a network if you can't safely and soundly mint and burn a token around the four walls of your institution? That's what Citi Token Services for Cash does,” she added.
Collateral has to be optimized to avoid its getting stuck and immobilized because of the operating hours. “Inefficiency in collateral is pretty significant from a bottom-line perspective,” she noted.
In another cross-border payment example, the Brevan Howard hedge fund’s BH Digital division has turned to JPMorgan Onyx and JPM Coin for programmable 24/7 transactions across an asset management ecosystem, Ledger Insights reported.
Brevan Howard and Onyx have participated in other ecosystem-building blockchain tokenization projects. Several such collaborative efforts have come together under the Monetary Authority of Singapore’s Project Guardian, with a roster ranging from BNY, Citi and JPMorgan to Apollo Global Management, Franklin Templeton and Hamilton Lane.
Lim Soon Chong of DBS Bank
Singapore’s DBS Bank, in what it called “the culmination of several years of industry collaborations” including Project Guardian, announced on October 18 DBS Token Services, “integrating the bank's Ethereum Virtual Machine-compatible permissioned blockchain, its core payment engine and multiple industry payment infrastructures” along with programmable smart contracts.
The offering represents “a new generation of ‘always-on’ banking services amid a reimagining of operating models and customer engagement strategies across the public and private sectors, said Lim Soon Chong, DBS’s group head of Global Transaction Services.
The application of tokenization and smart contract capabilities “marks a significant step forward in transaction banking and demonstrates how established financial institutions can leverage blockchain technology to deliver new groundbreaking features and experiences," he added.
Digital, tokenized bond issuance enables two-way quotable pricing, so clients can request a quote and immediately execute on it, Citi’s Singhvi said. The digital blockchain capabilities ease clearance and settlement in the back office.
In October 2023, Citi served as issuing and paying agent for a €100 million World Bank Digitally Native Note (DNN), the first issuance under English law via Euroclear’s Digital Financial Market Infrastructure (D-FMI) DLT platform.
In August this year, Citi was both a dealer and issuing and paying agent on the Asian Infrastructure Investment Bank’s first DNN. Raising $300 million on Euroclear’s D-FMI, it was the platform’s first digital issuance in USD and first by an Asia-based issuer.
“It demonstrates the continued value of the international issuance model and its potential to transform the way in which the debt capital markets operate,” an example of “innovative solutions that deliver benefits including improved transparency, efficiency, liquidity and client experience,” said Andrew Mulley, head of Citi Issuer Services, EMEA.
Just as the World Bank “first” was “the latest in a series of digital bond initiatives that we expect to participate in,” as Ryan Marsh, Global Head of Blockchain, Digital Assets & Innovation for Citi Securities Services, put it, Citi continues to develop and incubate digital-asset services for integration into CIDAP.
They will come with standard banking security and protections: “Everything that you traditionally go through on our payment rails, goes through this, even with additional scrutiny because it is emerging technology,” Rugg said, calling this “a really big differentiator.”
Citi is embedding risk processes into CIDAP as much as possible technologically, according to Singhvi.
“It is very clear for us that we need to lead from a client and a risk perspective first,” he stated. “We need to make sure that we understand the risk components. If we have the right approach to that, everything else follows very smoothly for us.
“We look at it holistically. We are pretty open to anything crypto. We are open to anything digital-asset – as long as we are thinking from a risk lens, thinking from our client lens and thinking about regulatory plans.”
Jeffrey Kutler of GARP contributed reporting for this article.