A legal dead end for stablecoins: why banks cannot work with USDC and how Custodia found a way out
Major banks still cannot fully integrate USDC into their operations. The reason is not technical, but legal. As I have repeatedly emphasized in my analyses, it is precisely legal uncertainty that remains the main barrier between traditional finance and digital assets. Caitlin Long, founder and CEO of Custodia Bank, clearly articulated the essence of the problem in a recent podcast: banks cannot use stablecoins because they do not have clear ownership rights to the asset.
According to Long, ordinary stablecoins exist in a "gray" legal zone. In the world of DeFi, no one cares about this — participants do not sue each other. But in regulated finance, it is different. Without a clear legal title, a bank cannot pledge the asset, issue a loan against it, or even confidently account for it on its balance sheet. This, I believe, has long held back the mass adoption of stablecoins in the banking sector.
How Custodia Solved This Problem
Long explained that Custodia took a path no one had considered before. The company applied the same legal structure for its electronic token as for a paper bank check. This fundamentally changes the situation: the bank receives clear ownership rights to the stablecoin. With such a title, financial institutions can confidently issue loans backed by this asset.
Moreover, Custodia embedded a banking level of operational control directly into the smart contract. Thus, the company bridged the requirements of regulated finance with the capabilities of the public blockchain. This, in my opinion, is a much more elegant solution than creating closed banking tokens like JPM Coin, which are only available to clients of a single bank. USDC, unlike them, is present on many platforms, but major players could not use it precisely due to the lack of a legal title. Now, with Custodia's solution, this wall may collapse.
My expert opinion: Custodia's legal structure is not just a technical innovation, but a potential trigger for the next wave of institutional adoption of stablecoins. If other banks follow this example, we will see a sharp increase in liquidity and lending based on USDC, which will radically change the landscape of the digital asset market.