Crypto-friendly banks Custodia Bank and Vantage Bank have launched a turnkey blockchain solution that permits traditional banks to issue tokenized deposits that work with stablecoins.
The solution allows banks to leverage blockchain's near-instant, low-cost transactions in an interoperable way with other banks while retaining customer deposits, the 2 banks said in a press release on Thursday.
“The patent-protected framework is designed to offer institutions and their customers with the efficiency and security of tokenization while protecting core deposits from the chance of disintermediation.”Source: Caitlin Long
Tokenized deposits are digital versions of bank deposits issued on a blockchain and represent real US dollars held by banks.
The initiative goals to enhance interoperability between crypto and traditional banking by introducing a single digital token that may function as each a tokenized deposit and a stablecoin.
The platform is accessible to banks of all sizes, who retain control of their wallets with tokenized deposits and GENIUS Act-compliant stablecoins.
The solution leverages Custodia's bank-focused blockchain and payment platform Infinant's Interlace network. This comes seven months after Custodia joined Vantage as the primary bank within the US to issue tokenized deposits on a permissionless blockchain.
Tokenized deposits compete with private stablecoins
The current crypto bull market has been driven primarily by institutional adoption, with banks and TradFi firms pursuing a big selection of strategies to take part in the crypto space.
One of those applications was stablecoins, a now $300 billion market that received a major boost when US President Donald Trump signed the GENIUS Act in July.
However, banks have raised concerns with regulators that stablecoin issuers and their affiliates that provide interest and yield on deposits could undermine the standard banking system.
The U.S. Treasury Department estimated in April that the stablecoin market could reach $2 trillion by 2028 and result in $6.6 trillion in bank deposit outflows.
For banks, tokenized deposits could help mitigate these outflows and maintain their competitive edge because the banking industry increasingly embraces digital solutions.
Custodia’s solution is already having an actual impact
Custodia is already running initial pilot programs leveraging its dollar tokenization technology, including people who enable cross-border payments for transportation firms and milestone-based payouts in construction.
It also supports supply chain accounting for manufacturers and more flexible payroll options within the service industry, it said.
