Custodia Bank and Vantage Bank have made history by issuing the first US bank-backed stablecoin, known as Avit, on a public blockchain network. This groundbreaking announcement was made in a press release on March 25th.
During a series of test transactions with a business customer, the stablecoin was utilized for minting, transferring, and redeeming tokens on the Ethereum (ETH) mainnet using the ERC-20 standard. This marks the first instance of dollar demand deposits from regulated banks being tokenized on Ethereum.
The successful completion of eight test transactions showcased a fully compliant process for minting, transferring, and redeeming stablecoins on a permissionless blockchain. Avit tokens were generated using the widely adopted ERC-20 standard, with real-world business-to-business transfers and redemptions into fiat US dollars being conducted during the pilot.
Custodia Bank, based in Wyoming, oversaw the issuance, custody, monitoring, and reconciliation of the tokens using its proprietary Avit Management System. Vantage Bank, based in Texas, held the fiat reserves backing the tokens and facilitated traditional settlement services via Fedwire and ACH.
In a significant milestone for the financial industry, the Avit pilot was conducted entirely within a regulated banking environment, unlike existing stablecoins that often operate outside the traditional banking perimeter. Both banks ensured compliance with various regulations such as the Bank Secrecy Act (BSA), anti-money laundering (AML), and Office of Foreign Assets Control (OFAC) rules.
Custodia Bank CEO Caitlin Long emphasized the importance of this achievement, stating, “We broke ground on the legal and regulatory front, proving that US banks can collaborate to tokenize demand deposits on a permissionless blockchain in a regulatorily compliant manner.”
With its programmable features, fast settlement times, low transaction costs, and transparent auditability, the Avit pilot highlighted the potential of blockchain-based stablecoins to revolutionize US dollar payments while maintaining the security of the banking system. Vantage Bank CEO Jeff Sinnott described the milestone as “a pivotal moment in reshaping the financial landscape,” showcasing how banks can spearhead cross-border payment innovation while reinforcing trust in the American dollar.
The use of Custodia’s US patent for the tokenization of bank deposits on permissionless blockchains further solidified the banks’ commitment to future-proof payment infrastructure anchored in the regulatory rigor of U.S. banking law.
As discussions around the role of stablecoins in the economy continue, the launch of Avit signals a promising path for dollar digitalization that harmonizes innovation with oversight. This pilot sets the stage for a new era of real-time, programmable payment solutions that leverage blockchain technology within the framework of regulatory compliance.
Image Source: Cryptoslate