Crypto-friendly banks Custodia Bank and Vantage Bank have launched a ready-made blockchain solution, enabling time-honored banks to issue tokenized deposits that will work with stablecoins.
The solution enables banks to leverage near-instant and low-cost blockchain transactions in an interoperable manner with other banks, while also being able to retain customer deposits, both banks he said in a statement on Thursday.
“The patent-protected framework aims to provide institutions and their customers with the efficiency and security of tokenization, while protecting core deposits from disintermediation risks.”
Tokenized deposits are digital versions of bank deposits issued on the blockchain, representing real US dollars held by banks.
The initiative aims to address the interoperability issue between cryptocurrency and time-honored banking by introducing a single digital token that can function as both a tokenized deposit and a stablecoin.
The platform is available to banks of all sizes that maintain control over their portfolios containing GENIUS Act-compliant tokenized deposits and stablecoins.
The solution uses the Custodia banking blockchain and Infinant’s Interlace payment platform. It comes seven months after Custodia became the first bank to issue tokenized deposits on a permissionless blockchain in the US using Vantage.
Tokenized deposits compete with private stablecoins
The current cryptocurrency bull market is driven primarily by institutional adoption, with banks and TradFi companies adopting a wide range of strategies to participate in the crypto space.
One of these application areas is stablecoins, a currently $300 billion market that has received a significant boost following U.S. President Donald Trump’s signing of the GENIUS Act in July.
However, banks have expressed concerns to regulators that stablecoin issuers and their affiliates offering interest and deposit yields could undermine the time-honored banking system.
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The U.S. Treasury estimated in April that the stablecoin market could reach $2 trillion by 2028 and result in an outflow of $6.6 trillion in bank deposits.
For banks, tokenized deposits could assist mitigate these outflows and maintain a competitive advantage as the banking industry increasingly moves toward digital solutions.
Custodia’s solution is already making a real impact
Custodia already has early pilot programs that leverage dollar tokenization technology, including programs that enable cross-border payments for transportation companies and milestone-based payouts in construction.
She noted that she also supports supply chain accounting for manufacturers and more adaptable pay options in service industries.
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