Banks vs. Stablecoins: A Legal Deadlock Preventing USDC from Entering Traditional Finance
Custodia Bank CEO Caitlin Long recently pointed out a fundamental legal issue blocking the integration of major stablecoins like USDC into the banking system. According to her, traditional banks cannot work with USDC due to the lack of a clear legal title to the asset — that is, a clear ownership right assigned to the token holder.
Long explained that standard stablecoins exist in a legal "gray zone." In the DeFi world, this doesn't matter: participants don't sue each other. But in regulated finance, unclear ownership rights make such assets unsuitable for banks. Without a clear title, a bank cannot pledge the asset, issue a loan against it, or even confidently record it on its balance sheet.
In her assessment, none of the major crypto companies have previously solved this problem. Even JPMorgan's JPM Coin is an internal product, available only to the bank's own clients. USDC is present on some banking platforms, but major players cannot use it precisely because of legal uncertainty.
Custodia's Solution: Token as a Bank Check
Custodia took a different path. Long said the company built the same legal structure for its electronic token as for a paper bank check. This gives banks confidence that they receive clear ownership rights to the stablecoin. With such a title, financial institutions can issue loans backed by the asset — opening the door to mass lending based on digital dollars.
Moreover, Custodia embedded a banking level of operational control directly into the smart contract. Thus, the company combined the requirements of regulated finance with the capabilities of a public blockchain. This is not just a technical improvement, but a paradigm shift: the stablecoin ceases to be a "token of trust" and becomes a full-fledged financial instrument.
Expert opinion: The problem raised by Long is the "elephant in the room" that the stablecoin industry prefers to ignore. Until USDC and USDT receive a clear legal status in the eyes of regulators, they will remain tools for retail traders and DeFi protocols, but will never become part of banking infrastructure. Custodia's solution could become a template for the entire industry, but it will require stablecoin issuers to radically rethink their legal architecture.