Custodia, Vantage Bank Issue First Bank-issued Stablecoin on Ethereum

Custodia Bank and Vantage Bank have achieved a significant milestone by issuing the first bank-issued stablecoin on a permissionless blockchain. This innovative collaboration involves the tokenization of U.S. dollar demand deposits, which are then issued on the Ethereum mainnet using the ERC-20 standard. The stablecoin, named Avit, was created for a customer and underwent a series of regulated test transactions, including minting, transferring, and redeeming the tokens. These transactions ensured compliance with U.S. banking regulations, such as the Bank Secrecy Act, Anti-Money Laundering laws, and Office of Foreign Assets Control guidelines.

Vantage Bank handled the fiat reserves and traditional banking services, while Custodia provided the blockchain functionalities, including issuance, custody, and reconciliation through its Avid Management System. The collaboration was closely monitored by the respective bank regulators, ensuring that all legal and regulatory requirements were met. Caitlin Long, CEO of Custodia Bank, highlighted the significance of this achievement, stating that it proves U.S. banks can collaborate to tokenize demand deposits on a permissionless blockchain in a compliant manner. She expressed hope for the reversal of regulatory obstacles that have hindered stablecoin innovation, allowing American consumers to benefit from the global reach of permissionless blockchain technologies.

Jeff Sinnott, president and CEO of Vantage Bank, described the feat as a pivotal moment in reshaping the financial landscape. He emphasized how blockchain and stablecoins can revolutionize payments and empower banks to lead responsibly in cross-border modernization. Long also noted that this accomplishment made stablecoins on par with "real dollars" as classified by the Federal Reserve, challenging the distinction between "real dollars" issued by banks and "synthetic dollars" issued by non-banks. She founded Custodia in Wyoming in 2020, and the bank has been in a prolonged regulatory battle with federal authorities to receive a master account and deal with cryptocurrencies.

The announcement came on the same day the Federal Reserve Board issued a statement clarifying that both insured and uninsured banks supervised by the Board would be subject to the same limitations on activities, including crypto-asset-related activities. Earlier that month, the Fed, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, released a joint statement on the key risks associated with crypto-assets. These actions are part of a broader regulatory effort aimed at discouraging banks from working with cryptocurrencies. Despite these challenges, the industry remains optimistic about the potential of stablecoins and blockchain technology to transform the financial sector.