Custodia Bank and Vantage Bank Launch “Avit” Stablecoin

Custodia Bank and Vantage Bank have launched what they claim to be the first bank-issued stablecoin in the United States, named “Avit.” This milestone was announced on March 25, 2025. The stablecoin was issued on the Ethereum blockchain using the ERC-20 token standard, marking a significant integration of traditional banking with blockchain technology. The Avit stablecoin is backed by tokenized U.S. dollar demand deposits—funds that customers can withdraw on demand, such as those in checking accounts—held by the banks. This distinguishes it from many existing stablecoins, which are typically issued by non-bank entities and backed by cash equivalents like government debt.

The process involved a series of test transactions, including minting, transferring, and redeeming Avit tokens for a bank customer, all conducted in compliance with U.S. banking regulations such as Bank Secrecy Act, Anti-Money Laundering, and Office of Foreign Assets Control requirements. Custodia Bank, based in Wyoming, managed the blockchain-related aspects, such as issuance, custody, and transaction monitoring, using its proprietary Avit Management System. Vantage Bank, based in Texas, handled the fiat reserves and traditional banking services like Fedwire and ACH transfers. The collaboration demonstrated efficiencies like low transaction costs, fast settlement, and programmability, all within a regulated banking environment.

Avit integrates traditional banking with blockchain technology, offering a regulated, bank-backed digital asset. This could accelerate the convergence of traditional finance (TradFi) and decentralized finance (DeFi), making blockchain-based payments more accessible within the mainstream financial system. By leveraging Ethereum’s blockchain, Avit provides a fast, low-cost alternative to existing systems like SWIFT, Fedwire, or ACH. This could streamline domestic and cross-border transactions, reducing friction and costs for businesses and consumers. Unlike dominant stablecoins like USDT (Tether) or USDC (Circle), which are issued by non-bank entities, Avit’s bank backing might appeal to institutions wary of counterparty risk, potentially challenging the market dominance of non-bank issuers.

Custodia’s CEO, Caitlin Long, emphasized that this proves banks can tokenize deposits on a permissionless blockchain compliantly, potentially paving the way for broader adoption. Vantage Bank’s CEO, Jeff Sinnott, highlighted its potential to revolutionize payments and modernize cross-border transactions while maintaining regulatory oversight. The choice of Ethereum over other blockchains, like Bitcoin (which Custodia has historically supported), also sparked discussion in the crypto community, with some noting Ethereum’s robust infrastructure as a key enabler for this project.

The successful issuance of Avit under U.S. banking regulations (BSA, AML, OFAC) demonstrates that banks can tokenize deposits compliantly on permissionless blockchains. This could set a precedent for other U.S. banks, encouraging broader adoption of blockchain technology. The collaboration between Custodia (a Wyoming SPDI) and Vantage (a traditional bank) showcases how different banking charters can navigate the regulatory landscape. This might pressure regulators to refine rules around digital assets, balancing innovation with oversight. Amid ongoing U.S. regulatory scrutiny of crypto (e.g., SEC vs. Coinbase).

The choice of Ethereum highlights its scalability and developer ecosystem as a viable platform for institutional use. This could bolster Ethereum’s dominance in tokenized assets, though it raises questions about why Custodia, a known Bitcoin advocate, opted against Bitcoin-based solutions like the Lightning Network. Avit’s smart contract capabilities enable programmable payments, which could transform use cases like automated settlements, escrow, or micropayments—features traditional banking struggles to replicate efficiently. As adoption grows, this will test Ethereum’s capacity to handle bank-grade transaction volumes, potentially exposing limitations like gas fees or network congestion.

Economic and Market Implications

Avit reinforces the U.S. dollar’s dominance in a digital format, countering narratives around central bank digital currencies (CBDCs) or foreign stablecoins (e.g., China’s digital yuan). It’s a private-sector-led answer to digital currency demand. Traditional banks may feel pressured to innovate or partner with blockchain firms to remain competitive, especially as fintechs and crypto-native companies encroach on payment services. A bank-issued stablecoin tied to demand deposits could attract users skeptical of non-bank stablecoins’ reserve transparency (e.g., Tether’s past controversies), though it hinges on the banks’ reputations and audits.

Despite compliance, federal regulators (e.g., the Fed or OCC) might scrutinize or restrict bank-issued stablecoins if they perceive risks to monetary policy or systemic stability. Convincing customers and merchants to use Avit over established systems or stablecoins will require significant education and infrastructure development. Crypto purists might argue that a bank-issued, permissioned stablecoin undermines the decentralized ethos of blockchain, limiting its appeal to certain users.

This launch could catalyze a wave of bank-led stablecoins, reshaping how money moves in the U.S. economy. It might also influence global financial systems, prompting other countries to explore similar models. However, its success depends on execution—scaling the technology, maintaining regulatory goodwill, and proving real-world utility. If Avit gains traction, it could mark a turning point where banks, not crypto startups, lead the next phase of digital finance.