Custodia Bank announced on March 25 that it had completed a landmark transaction in partnership with Vantage Bank, describing it as “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 blockchain-based U.S. dollar payment system was introduced in the traditional banking sector to address global demand for regulated, dollar-backed stablecoins. Avit, a trademark of Custodia Bank Inc., are fully reserved stablecoins structured as tokenized demand deposits, enabling programmable and auditable digital dollar payments on public blockchains. The announcement details:

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,” the announcement adds. Custodia oversaw blockchain issuance, redemption, custody, transaction monitoring and reconciliation via its Avit Management System.

The customer was able to move Avit tokens into self-custody, carry out business-to-business transactions outside the banking system, and later redeem the tokens for dollar deposits. To comply with U.S. regulations, both institutions implemented unique policies and documentation to meet Bank Secrecy Act, anti-money laundering, and Office of Foreign Assets Control (OFAC) requirements.

Custodia CEO Caitlin Long highlighted the importance of regulatory cooperation, stating: “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.” She also shared on social media platform X:

We took territory by issuing the first bank-issued stablecoin on a permissionless blockchain.

“It’s not what you think,” the executive added, elaborating: “The real impact is on tradfi … crypto took regulatory territory, but tradfi is the real story in what Custodia Bank did with Vantage Bank.”

Vantage Bank President and CEO Jeff Sinnott noted the wider impact of the project: “This event marks a pivotal moment in reshaping the financial landscape, demonstrating how blockchain and stablecoins can revolutionise payments. By executing this transaction, we’re empowering banks to lead responsibly in cross-border modernisation, while also leveraging the strength of the U.S. Dollar and demonstrating regulators’ support for responsible innovation.” The entire process utilised Custodia’s 2022 U.S. patent for tokenising dollar bank deposits on permissionless smart-contract platforms, laying the groundwork for further integration of blockchain in compliant banking environments.

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