Custodia Bank and Vantage Bank have unveiled Hazel Network, a new blockchain based payments infrastructure that allows a single token to function as both a bank deposit and a stablecoin depending on where it is held.
Key Takeaways
- Custodia Bank and Vantage Bank introduced Hazel Network, a platform built around a dual purpose token that can switch between a bank deposit and a stablecoin.
- The token functions as a tokenized bank deposit within participating banks and automatically becomes a stablecoin when moved outside the network.
- Hazel Network has been operating on Ethereum since March 2026 and is currently undergoing testing with participating financial institutions.
- The companies expect the platform to become broadly available to banks and customers in Q4 2026.
What Happened?
Custodia Bank and Vantage Bank have released a white paper detailing Hazel Network, a new payment system designed to bridge traditional banking and blockchain based finance. The network introduces a unified tokenized U.S. dollar that automatically changes its legal and operational status depending on who holds it.
The initiative comes as banks increasingly explore tokenized deposits and blockchain-payment systems while seeking ways to keep customer funds within the regulated banking sector amid rapid stablecoin growth.
🚀 Vantage Bank is exploring the future of banking. 🚀
— Vantage Bank (@Vantage_Bank) July 1, 2025
In partnership with Custodia, we’ve successfully completed a proof of concept for geolocation-triggered payments using tokenized U.S. dollar bank deposits — showcasing how programmable money could transform the way…
Hazel Network Introduces a Dual Character Token
At the center of Hazel Network is a single smart contract that issues a tokenized U.S. dollar capable of operating in two different forms. When held inside the Hazel consortium by participating banks, the asset functions as a bank deposit issued by a member institution. When transferred outside the consortium to external users or platforms, the same token automatically becomes a stablecoin.
According to the white paper, this transformation occurs programmatically without requiring a separate conversion transaction. The design is intended to eliminate conversion costs and friction while allowing digital dollars to move between traditional banking environments and blockchain ecosystems.
Inside the consortium, the token carries the characteristics and protections associated with bank deposits, including FDIC insurance where applicable. Outside the consortium, it is designed to be compliant with the proposed GENIUS Act framework and backed at least 1:1 by liquid assets such as cash and short duration U.S. Treasury securities.
The companies stated:
Built for Banks Without Replacing Existing Systems
One of Hazel Network’s key selling points is its ability to operate alongside existing banking infrastructure. Rather than requiring institutions to replace their core banking software, payment rails, or ledger systems, the platform functions as a digital asset sub ledger that integrates with current operations.
Custodia and Vantage said the network was designed for financial institutions of all sizes, including community banks and credit unions.
The platform offers three implementation options:
- Basic, which requires no core integration.
- Advanced, which supports batch file integration and online banking tools.
- Enterprise, which enables real time API connectivity and programmable financial products.
According to the companies, some institutions could begin integration within as little as four to six weeks.
Compliance and Security Embedded Into the Network
Hazel Network incorporates what its creators describe as a “Compliance by Construction” framework. Before any on chain settlement occurs, transactions are screened through multiple compliance layers.
These include:
- Anti-money laundering, sanctions, and fraud checks on related fiat transactions.
- Automated blockchain analytics for wallet and address monitoring.
- On chain sanctions screening through a sanctions oracle.
The smart contract also automatically blocks transfers that would exceed verified reserve balances, helping enforce reserve requirements directly at the protocol level.
Banks Race Toward Tokenized Deposits
The launch of Hazel Network reflects a broader trend across the banking industry. Financial institutions are increasingly exploring tokenized deposits as an alternative to traditional stablecoin models that can draw funds away from banks.
Recent reports indicate that The Clearing House, whose owners include major U.S. banks, is working on a blockchain based deposit network that could launch in the first half of 2027. At the same time, banks continue to debate stablecoin regulation and competition from crypto firms entering payment markets.
Data from DefiLlama shows the stablecoin market has expanded to roughly $315 billion, up from approximately $251 billion a year ago, highlighting growing demand for blockchain based dollar assets.
Hazel Network aims to address this challenge by creating a mechanism that allows tokenized dollars to move into blockchain ecosystems while maintaining a path back into the banking system as deposits.
Jeff Sinnott, President and CEO of Vantage Bank, said:
Custodia CEO Caitlin Long added:
The Ethereum based reference implementation has been live since March 2026, and the companies said they have completed the first of four planned testing phases with integration partner Infinant. Multiple pilot programs are currently underway, including one involving Participate to facilitate bank to bank loan participation closings and servicing.
CoinLaw’s Takeaway
I believe Hazel Network is one of the more interesting attempts to solve a growing problem facing traditional banks. Stablecoins offer faster and more flexible payments, but they also risk pulling deposits away from regulated institutions. In my experience, projects that try to connect traditional finance and blockchain often struggle with compliance and operational complexity. Hazel’s dual character model appears to address both issues by allowing the same asset to function differently depending on where it is held. If the system performs as intended and gains adoption among banks, it could become an important model for how tokenized deposits evolve in the coming years.
