TDB: Citi has been fairly active in leveraging blockchain technologies namely through its participation in the Regulated Liability Network, rollout of Citi Token Services and smart contract platforms, etc.. What are the principal goals for Citi’s digital assets business and how is its risk appetite being defined?
Shobhit Maini, Co-Head of Digital Assets, Global Markets, Citi: Our approach to blockchain technology and digital assets is centred around clients i.e. how can we enable access to new assets and tokenized versions of traditional assets; and how can we deliver the benefits of this technology to clients to drive value for them including improved operational efficiencies, faster processing, fractionalization, programmability and transparency. Any digital assets or blockchain initiative that we undertake goes through a three part filter – the first prong is about whether or not we see a client demand for a product or service. The second prong is an consideration of whether we understand all the risks associated with the product or service, and more importantly are we able to manage these risks, And finally, whether or not we cab provide the product and service consistent with our regulatory obligations in the jurisdictions under considerations. If the answer is yes to all three of these questions, then we move to implementation.
TDB: What key business challenges are you looking to solve for your institutional clients through blockchain and tokenisation and what opportunities do you see for Citi’s digital assets business in 2024?
Shobhit Maini: Digital Assets and Blockchain continues to be challenging area for regulated institutions as it is at the confluence of evolving technology, market structure and regulatory frameworks. With that context, the challenge that not only us, but the entire industry is very motivated to address is interoperability of various blockchain based infrastructures. For example, tokenized securities and cash for most part exist on different networks that are currently not compatible – this hinders unlocking benefits around settlement and other post trade efficiencies, and will prevent the realization of the full potential of this technology. The solution requires a combination of tech innovation, legal work and network development, and it is encouraging to see many innovative startups and traditional finance firms working hand in hand to solve this problem. We are working on a number of Tokenization related initiatives across the organization that can create potential benefits for payments, trade finance, distribution, collateral mobility, issuance and settlement efficiencies.
TDB: Citi has just announced the development of an on-chain FX solution under MAS’ Project Guardian. What tangible value are you looking to realise through blockchain-based FX trade transactions? Also, when can we expect the application to be rolled out to institutional clients?
Shobhit Maini: As I mentioned in our announcement, there are many proof points that demonstrate the impact of blockchain on driving post trade efficiencies, but not many for conducting pre-trade and execution phases of a trade lifecycle using this tech while retaining critical features such as limiting trading with authorized counterparties, capital efficiencies, maintain privacy of data associated with trades/quotes and pricing competitiveness. The majority of our current trading with clients is bilateral and we wanted to explore the feasibility of conducting such trades over blockchain. Earlier this year we issued a report that estimated that ~10 tn worth of assets could exist on blockchain by 2030. To settle and trade these assets, new infrastructure may be required. The main benefit demonstrated in this solution was data immutability as all quotes and executed trades are recorded on blockchain that enables real time post trade analysis such as Best execution analysis. Other potential benefits of blockchain (not tested in this solution) is that the front to back trade lifecycle can be enable on a single infrastructure reducing counterparty risk due to true PvP on much faster settlement cycles, possibly even near instantaneous. We will continue to be led by client feedback to determine any useful additional features. At this point, there are currently no plans for a commercial rollout of this solution.
TDB: Blockchain technology continues to be heavily tested and trialled for different use-cases by different players in the industry. As governance, regulatory and operational frameworks evolve do you see the blockchain based infrastructure meaningfully displacing traditional rails within financial markets – at least in the short-term? Is this a case of parallel infrastructures mutually co-existing and reinforcing each other?
Shobhit Maini: We think of this technology as a meaningful component part of the broader digital transformation of financial services. We are on a 5-10 year journey where blockchain infrastructures will be deployed to solve most pressing problems rather than a full replacement of traditional rails, therefore we do not see a full displacement of traditional rails, rather a case of parallel infrastructures mutually co-existing and reinforcing each other.
