Custodia Bank, in collaboration with Vantage Bank, has released a new type of stablecoin called Avit, pegged to US dollars. This is the first such token issued by a US bank on a public blockchain platform like Ethereum.
How the Avit Stablecoin Works
Custodia and Vantage tested Avit in a live transaction on the Ethereum blockchain. The process involved eight steps, starting with the creation of Avit tokens and their transfer into a customer's wallet, use for business transactions, and return to Custodia Bank for cash exchange. The test showed that the new tokens could move freely between accounts like fiat currency, with quick and less costly transactions than traditional systems. All transactions adhered to US financial laws, including the Bank Secrecy Act and Anti-Money Laundering rules. New policies and documents were created to ensure full compliance.
Avit: A Step Toward a New Financial System
In a statement, Caitlin Long, CEO of Custodia Bank, said this project proves US banks can issue stablecoins on a public blockchain while following all rules. She hopes US regulators will soon simplify banking innovation with blockchain technology. The test demonstrated several benefits of using blockchain for payments: transactions were fast, costs were low, and everything was easy to track, making stablecoins a great option for those seeking secure and instant digital payments.
Custodia’s Legal Struggle with the Federal Reserve
Custodia operates under Wyoming’s Special Purpose Depository Institution (SPDI) framework, allowing it to offer digital asset services while keeping 100% of customer deposits in reserve. This differentiates it from traditional banks, which lend out deposits to earn profits. Despite this, Custodia has faced regulatory challenges. In 2023, the Federal Reserve denied its request for a master account, which would allow the bank direct access to the Fed’s payment system, enabling more independent operations. Custodia sued the Fed, arguing it was unfairly treated due to its focus on crypto services.
The launch of Avit signifies significant progress in integrating blockchain technology into the traditional banking system. While Custodia continues its legal battle for equal standing, the project demonstrates the potential for financial system transformation through innovation.
