Custodia Bank has partnered with Texas community bank Vantage to mint, transfer and redeem a deposit token on the Ethereum blockchain. The reason for using quotes around the term “stablecoin” is because deposit tokens on a permissionless blockchain appear similar to stablecoins, but if they are purely backed by deposits and issued by a bank, then legally they are different. They’re simply a bank deposit using a different technology.
With stablecoin laws progressing through Congress, both the House and Senate versions of the legislation exclude bank-issued tokens backed by deposits, precisely for this reason.
The solution isn’t yet live, so it was a series of test transactions using Avit tokens (Custodia’s brand) on behalf of a bank customer. Custodia noted the benefits of low transaction costs, speed and programmability. Both sets of bank regulators monitored the transactions which featured the compliance requirements you’d expect for banks.
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