First US Bank-Issued Stablecoin Goes Live on Ethereum: Details

Custodia Bank, a Wyoming-based financial institution that supports cryptocurrency, has partnered with Texas-based Vantage Bank to launch a new type of stablecoin. This digital token, Avit, pegged to U.S. dollars, is the first to be issued by a U.S. bank on a public blockchain like Ethereum. 

Unlike traditional stablecoins like USDT and USDC issued by private companies, Avit is fully backed by real cash reserves held by regulated banks. The goal is to create a safer and more transparent digital dollar system.

How The Avit Stablecoin Works  

Custodia and Vantage tested Avit in a live transaction on the Ethereum blockchain. The process involved eight steps. First, the banks created the Avit tokens and moved a customer’s wallet. The tokens were used for business transactions and later returned to Custodia Bank, where they were exchanged for cash. 

The test showed that the new tokens can move freely between accounts like fiat currency. The transactions were completed quickly and at a lower cost than traditional payment systems. 

Custodia and Vantage Bank ensured all transactions followed US financial laws, including the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) rules. They created new policies and documents to ensure full compliance, making this project different from other stablecoin issuers.

Avit Stablecoin: A Step Toward a New Financial System  

In a statement, Caitlin Long, CEO of Custodia Bank, said this project proves that US banks can issue stablecoins on a public blockchain while following all rules. She hopes that US regulators will soon make it easier for banks to innovate with blockchain technology.

The test also showed several benefits of using blockchain for payments. 

Transactions were fast, costs were low, and everything was easy to track. This makes stablecoins a great option for businesses and individuals who want secure and instant digital payments.

Custodia’s Legal Struggle with the Federal Reserve

Custodia operates under Wyoming’s Special Purpose Depository Institution (SPDI) framework, which was created in 2019. This license allows 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. Regardless, Custodia has struggled with regulators. In 2023, during a crackdown on crypto banking known as “Operation Choke Point 2.0,” the Federal Reserve denied Custodia’s request for a master account. 

This account would have given the bank direct access to the Fed’s payment system, allowing it to operate more independently. The bank sued the Fed, arguing it was unfairly treated because of its focus on crypto. The case continues as Custodia fights for direct access to the Fed’s services.