Custodia Has a Patent for Bank Stablecoins: Can It Box Out Big Banks?

I found this story compelling because it highlights how intellectual property — patents in particular — is emerging as a crucial factor in the stablecoin race.

As major banks prepare to launch their own digital dollars, the ability to protect technological innovations with patents could define who controls the infrastructure of tomorrow’s financial system. 

Custodia’s patent on tokenizing bank deposits signals that fintech innovation is moving beyond code and regulatory compliance into the realm of strategic IP battles, which could reshape the competitive landscape of digital finance.

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Custodia Has a Patent for Bank Stablecoins: Can It Box Out Big Banks?

Custodia patented tokenized bank deposits back in 2022 when there was little interest from the big banks. Now that the likes of JPMorgan and Citi are getting involved, will the patent hold? 

When President Donald Trump signed the GENIUS Act into law last month, ushering in a new era for the $275 billion stablecoin industry, analysts immediately assumed that big banks just as JPMorgan, Citibank, and Bank of America were going to be the big winners. 

After all, they held trillions of dollars in deposits and now had regulatory clearance to compete with the likes of Tether and Circle. However, one company claimed that it would be able to stand in their way: Wyoming-based Custodia bank. 

Led by long-term crypto advocate Caitlin Long, Custodia is best known in crypto circles for its unsuccessful (so far) years-long effort to obtain a Fed master account. But, the company did have one thing that it claimed could give it a leg up in this new stablecoin derby, a patent covering the entirety of bank-issued tokens.

“Custodia applied early for the patent on bank-issued stablecoins, and it was granted in 2022, covering both stablecoins and tokenized bank deposits,” said Long in an interview with Unchained shortly after the GENIUS Act (the U.S. stablecoin law) was signed into law. “We are already aggressively pursuing infringers.” She would not elaborate further, and it does not appear that any formal action has been taken against anyone allegedly infringing on her patent.

But the lingering question remains whether Custodia’s patent could be an impediment to banks issuing stablecoins, especially when they have become a centerpiece of the administration’s agenda. And when it comes to patents, it does not always come down to the strength of the patent itself, but how you play the game.

“Now that the application has been issued into a patent, they are in a better position to go after competitors,” Agatha H. Liu, Ph.D., partner at Duane Morris, explains. Still, she and John F. Duffy, Samuel H. McCoy II Professor of Law and Director of the Center on Intellectual Property Law at the University of Virginia, agree that issuance doesn’t guarantee courtroom success. 

“Just because a patent is issued doesn’t mean it’s valid,” Duffy warns. 

Background on Custodia’s Patent

According to Custodia’s patent, No. 11,392,906, granted in July 2022, the claim aims to fix key frictions in U.S. payments, including sluggish wire transfers and risky ACH payments. Specifically it details “a method of linking a cryptographic token issued by a financial institution with a fiat currency deposit held within the same financial institution…” The system turns dollar bank deposits into programmable tokens on public blockchains. Each token is backed 1:1 by real dollars and governed by smart contracts that handle issuance, redemption, and destruction. A “circulation group” facilitates user transactions, while a “non-circulation group” ensures secure redemption.

“In this patent, Custodia Bank claimed to disclose an alternative to stablecoins. The difference is how the reserve is managed. USDC is a payment token issued by non-bank entities, but Custodia Bank, as a bank issuer, manages reserves as deposits under the same bank structure,” says Liu. 

At the time, the total supply of stablecoins was around $150 billion, and given that the industry was in the midst of a major bear market that culminated in the collapse of FTX in November 2022, few banks seemed eager to get into the industry. It barely made a blip.

But for Long’s Custodia, which received a state charter from Wyoming in 2020 to create a new type of bank that did not fractionalize deposits, it was meant to be a key part of the product rollout.

Evolving No. 11,392,906

Custodia’s issued patent builds on an earlier provisional application, and its patent portfolio is likely to grow. The current patent and the pending application (No. 18/335,442) both stem from the same original provisional filing or a ‘parent’ application, meaning the initial part of the application is identical, but new claims are added. Duffy notes to be careful about applications like this, because Custodia’s or any application could turn into a patent as soon as tomorrow. 

If 18/335,442 gets granted, it could transform Custodia’s legal footing—particularly against the big banks. “The pending application can be used to ‘correct’ limitations in the issued patent,” Liu says. Duffy concurs: “This is a standard tactic to adapt to evolving technology or commercial embodiments.”

Under the current patent, Custodia could generate revenue through licensing agreements with other banks seeking to avoid infringing on its patent or via cross-licensing deals. If the pending application becomes a patent, that increases Custodia’s leverage. However, a fintech expert speculated that her end goal “is probably to try to get somebody to make it go away by buying the patent or for some patent troll litigation firm to buy it from her to just go sue people.”

Big Banks Join the Race Amid the GENIUS Act

Bank-issued stablecoins were once theoretical. Now, they’re strategic imperatives — especially after the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) became law on July 18, granting banks a clear regulatory runway to issue digital dollars.

Bank of America CEO Brian Moynihan captured the industry’s tone: “We have to have it. The industry has to have it.” Morgan Stanley’s CFO Sharon Yeshaya echoed him, saying the firm is “following stablecoin developments closely,” while Citigroup CEO Jane Fraser also said the bank may issue a stablecoin to facilitate digital payments.

Leading the charge, JPMorgan launched JPMD, a USD deposit token, on Base, Coinbase’s Ethereum Layer 2 network. The token enables rapid institutional fund transfers — mirroring some of the core mechanics described in Custodia’s patent. JPMorgan confirmed the pilot launched in late June to Unchained.

Wells Fargo, Citi, JPMorgan, and Bank of America are also reportedly exploring a joint stablecoin issuance through a consortium model, while European powerhouse Societe Generale-FORGE launched USDCV, a stablecoin under the European regulatory regime known as MiCA, on Solana and Ethereum. Though unavailable in the U.S., SocGen’s move signals global interest in regulated stablecoin frameworks.

Is Custodia’s Patent an Ace Up Its Sleeve, or a Joker?

But despite Custodia’s headstart, many experts express doubts about the long-term efficacy of the patent. Ahsan Shaikh, partner and head of patent prosecution at McDermott Will & Schulte, offers this view: “At best, Custodia has a bargaining chip here. Large banks typically have substantial blockchain patent portfolios and may respond with their own claims.”

Shaikh notes that infringement hinges on specifics. “If anyone can demonstrate they do not perform each of the claimed steps, they are not infringing,” he explains. “There could be easy ways to work around this patent.” Liu agrees. “It is possible for Custodia to go after JPMorgan,” Liu explains, “but whether they win depends on exactly what JPMorgan is doing. There are different strategies to design around the patent.”

According to Duffy, who co-authored briefs and argued the landmark patent case KSR v. Teleflex before the Supreme Court, “When there is a new technology, you have to be careful — just because something is new doesn’t mean it is not obvious.” He illustrated this by noting that early uses of the telephone — whether placing a business orders or calling your mom on Mother’s Day — were obvious applications of a general-purpose device. Duffy further observed that everything in crypto is new, and while many patents have been filed based on computerization and the internet, the mere newness of technology does not automatically justify broad patent protection.

A fintech expert with experience structuring regulated digital asset products at major financial institutions also told Unchained that Custodia’s patent may face significant challenges on both technical and legal grounds. “I’m aware of tokenized deposit efforts that predate Custodia,” the expert said, adding, “Again, this is just a statement on how the patent system works. I might feel very differently if this was a novel technology question, but putting money on a slightly different ledger is not transformative.”

Cards Left for Custodia to Play

That said, the potential for negotiation or cross-licensing remains open, especially if the big banks want to avoid protracted legal proceedings. “Custodia’s patent is a strategic tool,” Shaikh adds, “but large banks’ deep patent portfolios could lead to countersuits or licensing deals.”

Despite the risks, Liu says some banks may prefer negotiation: “Banks could negotiate licenses or collaborate with Custodia if they see benefits in partnering.” Duffy highlighted in a Stanford Law Review article on the rise of business patents. Duffy draws a line from crypto back to the 1980s rise of financial engineering, and points to an inventor like Commerce Secretary Howard Lutnick who accumulated hundreds of finance-related patents. Lutnick is from Cantor Fitzgerald and well-known in the crypto community because of the partnership between Cantor and Tether. In this evolution, finance professionals increasingly saw themselves as “financial engineers,” leveraging intellectual property as a competitive moat — an approach that Custodia, under Caitlin’s leadership, may now be seeking to replicate in the crypto banking space. 

“Cryptocurrencies and now stablecoins are merely the latest outgrowths of a much older and more general trend towards mathematical and engineering-based approaches to business, finance and related fields. And if innovators in any field begin to think of themselves as engineers and their field as a branch of engineering, it is entirely natural and appropriate for them to begin to expect the same legal rights that engineers have in other fields, including the legal right to seek, obtain, and enforce patents on their innovations,” stated Duffy. 

State of Play

In the meantime, Long and Custodia are working to put their patent to use. On March 25, 2025, Custodia Bank, partnered with Vantage Bank, launched Avit — the first U.S. bank-issued stablecoin on a permissionless blockchain, which in Avit’s case is Ethereum. “We’re working with Vantage Bank in Texas to build a consortium of smaller banks that can compete with the big banks, protected by that patent as a competitive advantage,” said Long. No further details have been shared or released publicly yet on the consortium. 

For now, none of the large banks have tried to issue retail-focused stablecoins that would run afoul of the patent, perhaps due to the novelty of the legislation itself. Unchained reached out to JPMorgan Chase, Citigroup, Bank of America, Societe Generale (SocGen), and Wells Fargo as to whether the banks were aware of Custodia’s patent. None responded. 

However, though Long may have some cards to play, the experts interviewed for this article suggested that she not overplay her hand either. The fintech expert cited how the banks could play hardball — they “could totally go to the Trump administration and be like, ‘Hey, this giant stablecoin thing that you want moving, we're now going to blacklist all the issuers [from banking services] because of this patent thing.’” 

The source also suggested that if necessary, Congress could just change the law (that the president would sign) to override the patent. Alternatively, a regulator, such as the Federal Reserve, could just nationalize the patent, in which the U.S. government pays for and takes control of an invention’s rights in order to serve a public need.

Related content: 

• GENIUS Act Passes: Who Are the Winners, Losers, and What Comes Next? 

• The U.S. Finally Has Stablecoin Legislation. Can Crypto Compete With Banks? 

• Big Wall Street Banks Explore Joint Stablecoin Initiative