Custodia Bank and Vantage Bank have launched the first US bank-backed stablecoin, named Avit, on a public blockchain network, as announced in a press release on March 25.
This stablecoin was utilized in a series of test transactions with a business client. The pilot involved the minting, transferring, and redeeming of tokens on the Ethereum (ETH) mainnet, adhering to the ERC-20 standard.
This initiative marks the inaugural occasion where dollar demand deposits from regulated banks have been tokenized on the Ethereum network.
Tokenized Payment Solutions from Banks
The series included eight test transactions that showcased a fully compliant method for minting, transferring, and redeeming stablecoins on a permissionless blockchain.
Avit tokens were generated following the widely recognized ERC-20 standard, and the pilot included genuine business-to-business transfers and redemptions into fiat US dollars.
This development signifies a significant advancement in integrating blockchain technology with the US banking framework at a time of increasing global interest in digital dollar payments.
Custodia Bank, located in Wyoming, oversaw the issuance, custody, monitoring, and reconciliation of the tokens through its proprietary Avit Management System. Vantage Bank, situated in Texas, maintained the fiat reserves supporting the tokens and provided traditional settlement services via Fedwire and ACH.
The test involved a bank customer transferring Avit tokens into self-custody, conducting transactions with third parties outside the banking system, and redeeming them back into dollar deposits.
In contrast to existing stablecoins that frequently operate beyond the traditional banking sphere, the Avit pilot was carried out entirely within a regulated banking landscape.
Both banks adhered to the Bank Secrecy Act (BSA), anti-money laundering (AML), and Office of Foreign Assets Control (OFAC) regulations. This necessitated the creation of customized documentation, policies, and procedures that comply with federal banking standards, establishing a potential framework for other institutions to follow.
The CEO of Custodia Bank commented:
“We have made significant progress on the legal and regulatory front, demonstrating that US banks can collaborate to tokenize demand deposits on a permissionless blockchain in a compliant manner.”
Innovative Payment Infrastructure
Featuring programmable capabilities, swift settlement times, low transaction fees, and transparent auditability, the pilot showcased how blockchain-based stablecoins could revolutionize US dollar payments while maintaining the protections of the banking system.
The CEO of Vantage Bank described this milestone as “a pivotal moment in reshaping the financial landscape,” emphasizing it illustrates how banks can spearhead innovation in cross-border payments while bolstering trust in the US dollar.
The transactions also represented the inaugural utilization of Custodia’s US patent (No. 11392906), awarded in 2022, regarding the tokenization of bank deposits on permissionless blockchains.
The banks aim for this pilot to lay the groundwork for future real-time, programmable payment infrastructure grounded in the stringent regulatory framework of U.S. banking law.
As U.S. policymakers continue to discuss the role of stablecoins in the broader economy, the launch of Avit may indicate a promising direction for the digitalization of the dollar, aligning innovation with regulatory oversight.
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