Last year Citi partnered with Switzerland’s SIX Digital Exchange to tokenize the stocks of late stage private firms. Today it announced its first such deal, tokenizing stock in Kaleido, itself a tokenization infrastructure firm whose clients include Swift and many large banks. Kaleido is also a Citi Ventures portfolio company, making the debut asset one of Citi’s own investments, distributed to its wealth clients.
Citi is hoping the infrastructure could also be adopted by other banks. The use of the Swiss exchange provides a hint that the initial target market is foreign investors, although Citi plans to target US investors in future.
The offering is for high net worth individuals (HNWI) and institutions, for good reason. The tokens represent depositary receipts which are issued in collaboration with the private company. This structure only really works if you’re targeting HNWIs and institutions because the amount invested needs to be significant given that US private companies usually have a maximum of 2,000 shareholders. That’s why special purpose vehicles (SPVs) are more common for tokenization because the SPV represents a single direct shareholder in the private company. However, the big downside of SPVs is that token holders have to trust that the SPV actually holds the underlying stock. Citi, by contrast, acts as both the issuer and custodian of the depositary receipts, which it argues makes for a more trusted alternative with less complexity and fewer hidden costs.
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