Custodia and Vantage Bank unveil deposit token network for stablecoin conversion

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Custodia and Vantage Bank unveil deposit token network for stablecoin conversion

Custodia Bank and Vantage Bank have proposed a new deposit token network designed to bridge the gap between traditional bank deposits and stablecoins. The system, detailed in a recent white paper, aims to create a seamless conversion mechanism for digital assets within a regulated banking framework.

How the Hazel network works

The proposed token model, referred to as the Hazel network, treats the token as a bank deposit when held within a consortium of participating banks. According to the white paper, when the token is moved outside this network, it automatically converts into a stablecoin backed by cash and short-term U.S. Treasuries. This design ensures that the token maintains a stable value while remaining compliant with existing banking regulations.

The system has been operating on the Ethereum network since March 2025 and is currently being tested with a select group of participating banks. Custodia and Vantage Bank have indicated that a full launch is targeted for later this year, pending regulatory approvals and successful completion of the testing phase.

Industry context and competitive landscape

The proposal comes at a time when traditional financial institutions are increasingly exploring blockchain-based solutions for payments and settlements. The Clearing House, a payments network operator owned by major banks including JPMorgan, Bank of America, and Citigroup, is also pursuing the launch of a deposit token network, with a target rollout in the first half of 2027, according to a recent Wall Street Journal report.

This parallel development suggests that deposit tokens are gaining traction as a potential bridge between the existing banking system and the growing stablecoin market. The Hazel network’s focus on automatic conversion between bank deposits and stablecoins could provide a model for how regulated banks can participate in the digital asset ecosystem without compromising on safety or compliance.

Implications for the broader financial system

If successful, the Hazel network could offer several advantages. For consumers and businesses, it could simplify the process of moving funds between traditional bank accounts and stablecoin wallets, reducing friction and transaction costs. For banks, it could provide a way to retain deposits while offering customers access to digital assets, potentially reducing the risk of deposit outflows to unregulated platforms.

Regulators are likely to scrutinize the proposal closely, particularly around issues of consumer protection, anti-money laundering compliance, and systemic risk. The use of short-term U.S. Treasuries as backing for the stablecoin component adds a layer of security, but questions remain about how the network would handle large-scale conversions during periods of market stress.

Conclusion

The Hazel network represents a significant step toward integrating stablecoins into the regulated banking system. While still in its testing phase, the proposal highlights the growing interest among financial institutions in using blockchain technology to improve payment efficiency and offer new digital asset services. The outcome of this initiative could influence how other banks approach deposit tokenization and stablecoin integration in the coming years.

FAQs

Q1: What is the Hazel network?
A: The Hazel network is a proposed deposit token system by Custodia Bank and Vantage Bank that allows automatic conversion between bank deposits and stablecoins. It operates on the Ethereum blockchain and is designed for use within a consortium of participating banks.

Q2: How does the token conversion work?
A: Within the Hazel network, the token is treated as a bank deposit. When moved outside the network, it converts into a stablecoin backed by cash and short-term U.S. Treasuries, ensuring stability and regulatory compliance.

Q3: When will the Hazel network launch?
A: The system has been live on Ethereum since March 2025 and is currently being tested with participating banks. A full launch is targeted for later this year, subject to regulatory approvals and successful testing.

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