Custodia Bank, working with Vantage Bank, completed America’s first-ever tokenization of a bank’s U.S. dollar demand deposits on a permissionless blockchain by issuing, transferring and redeeming Avit™ stablecoins for a bank customer. A new U.S. dollar payment rail has now been activated inside the U.S. banking system, at a time when the global community is increasingly demanding U.S. dollar stablecoins for transactional use.

All parties to the series of test transactions observed several efficiencies, including low transaction costs, fast transaction settlement, programmability and auditability within a safe, compliant and regulated banking environment.

The banks collaborated on the mint, transfer and redemption of Avit tokens for a bank customer on the Ethereum mainnet using the ERC-20 standard. Parties transacted in eight stages, with Vantage Bank managing the stablecoin fiat reserves and providing Fedwire/ACH services. Custodia Bank managed blockchain issuance/redemption services, custody services, blockchain transaction monitoring and reconciliation using its Avit Management System. The eight stages included transfers by the bank customer of its Avit tokens into self-custody, transacting with its Avit tokens business-to-business outside the banking system, and transferring its Avit tokens back to Custodia Bank for redemption into U.S. dollar demand deposits.

The banks complied with all applicable U.S. bank regulatory requirements, including BSA/AML/OFAC, which necessitated designing documentation, policies and procedures that differ from those of current stablecoin issuers. Both banks worked closely with their respective bank regulators to ensure the success of this first-of-its-kind project.

“We broke ground on the legal/regulatory front, proving that U.S. banks can collaborate to tokenize demand deposits on a permissionless blockchain in a regulatorily-compliant manner,” said Caitlin Long, CEO of Custodia Bank. “Custodia looks forward to the reversal of U.S. regulatory obstacles that have stymied stablecoin innovation in recent years, so that American consumers can benefit from the substantial network effects and global reach of permissionless blockchain technologies.”

Jeff Sinnott, President and CEO of Vantage Bank said, “This event marks a pivotal moment in reshaping the financial landscape, demonstrating how blockchain and stablecoins can revolutionize payments. By executing this transaction, we’re empowering banks to lead responsibly in cross-border modernization, while also leveraging the strength of the U.S. Dollar and demonstrating regulators’ support for responsible innovation.”

The transactions deployed Custodia’s patent, U.S. patent 11392906 (issued July 2022), for the tokenization of U.S. dollar bank deposits on smart-contract type permissionless blockchains.

Source: Custodia