Cross-border tokenized deposits on the Ethereum network are now facilitated by Custodia and Vantage.
In a bid to revolutionise cross-border payments, Custodia Bank and Vantage Bank have joined forces to support transactions using Custodia's Avit token on a permissionless blockchain. Despite the collaboration, Custodia Bank's application for a Federal Reserve master account has been rejected, citing concerns over its "unprecedented business model" and substantial involvement in crypto.
Custodia's Avit token, often referred to as a stablecoin, is not legally recognised as such. However, it is backed by bank deposits and issued by a bank, making it subject to conventional bank regulations, including the Bank Secrecy Act and anti-money laundering compliance.
Vantage Bank views this collaboration as a means to offer faster, cheaper cross-border payments and to provide foreign exchange services. Payments can be initiated via a smart contract at delivery using the programmable dollar tokens.
The Kansas City Fed deemed Custodia Bank technically eligible for a master account in 2022, but the bank's engagement in blockchain and crypto required approvals. Custodia Bank is now seeking partnerships with other banks interested in deploying tokenized deposits.
One of the customers benefiting from this innovation is DX Xpress, who used the programmable dollar tokens for a payment between Mexico and the United States. DX Xpress is also using the tokens to pay drivers and for conditional payments, such as paying for ecommerce purchases on delivery. If goods don't arrive, the buyer isn't out of pocket with the use of these programmable dollar tokens.
The broader regulatory environment continues to evolve in this area, with the recently enacted GENIUS Act prioritising financial stability and anti-money laundering concerns. The approval process for Custodia Bank's master account involves banks engaging in blockchain and crypto.
Holders of the Avit token have rights and protections under the Uniform Commercial Code, unlike stablecoin holders. This collaboration between Custodia and Vantage Bank, while not directly impacting the Fed's master account decision, aims to leverage tokenization technologies to streamline and accelerate payments, improve transparency, and reduce costs in cross-border transactions.
In summary, Custodia Bank does not have a Federal Reserve master account due to regulatory safety concerns linked to its crypto focus. Its tokenized deposit collaboration with Vantage Bank supports more efficient cross-border payments through blockchain-based innovations, potentially improving efficiency and reducing friction in international banking transactions. The regulatory landscape remains cautious about expanding Federal Reserve master account access to crypto-related entities.
- The collaboration between Custodia and Vantage Bank, despite not directly impacting the Federal Reserve's master account decision, seeks to utilize tokenization technologies to improve transparency, streamline, and accelerate cross-border payments.
- Custodia's Avit token, although not legally recognized as a stablecoin, is subject to conventional bank regulations, including the Bank Secrecy Act and anti-money laundering compliance, due to its backing by bank deposits and issuance by a bank.
- The broader regulatory environment, with the recent enactment of the GENIUS Act prioritizing financial stability and anti-money laundering concerns, is cautious about expanding Federal Reserve master account access to crypto-related entities, as demonstrated by the rejection of Custodia Bank's application.