Banks Target Stablecoin Market With Dual-Purpose Digital Token
Traditional banks are moving deeper into digital assets with a new token model designed to bridge regulated banking and blockchain payments.
Summary:
- Custodia and Vantage introduced the Hazel Network’s hybrid deposit-stablecoin model.
- The token acts as an FDIC-insured bank deposit inside the banking system.
- Outside the network, it automatically converts into a GENIUS Act-compliant stablecoin.
- Live testing has been running on Ethereum since March 2026.
Custodia Bank and Vantage Bank unveiled the Hazel Network, a system that allows a single digital token to function as either a bank deposit or a stablecoin depending on where it is held.
Hazel Network Blends Banking and Stablecoins
The Hazel Network introduces a unified token architecture that changes its legal and operational status based on its location within the financial system.
Inside participating banking networks, the token functions as a tokenized bank deposit. Deposits remain on bank balance sheets, preserving the traditional banking relationship while maintaining regulatory protections associated with deposit accounts.
When the token moves outside the banking network onto public blockchain infrastructure, it automatically becomes a stablecoin backed one-to-one by cash and short-term U.S. Treasury securities.
The transition occurs programmatically without requiring users to manually convert assets between formats.
Solving the Deposit Flight Problem
The design addresses one of the banking industry’s biggest concerns surrounding stablecoins: deposit migration.
Banks have long worried that widespread stablecoin adoption could encourage customers to move funds out of traditional deposit accounts, reducing a critical source of funding for lending and liquidity operations.
Hazel’s architecture seeks to eliminate that friction by allowing institutions to offer blockchain-native payments while keeping deposits within the banking ecosystem whenever possible.
Supporters argue the model could provide banks with a compliant pathway into digital assets without sacrificing balance-sheet stability.
Built for the GENIUS Act Era
The launch comes as U.S. regulators move to implement the GENIUS Act, which established the country’s first federal framework for payment stablecoins.
Under the proposed structure, stablecoin reserves must be backed by highly liquid assets such as cash and short-duration
Treasury securities. Hazel’s stablecoin mode was specifically designed around those requirements.
READ MORE: Plasma Launches Stablecoin Banking App With Visa Integration
Recent regulatory proposals from the OCC and FinCEN have further increased reporting, reserve transparency and compliance obligations for issuers, making regulatory-ready infrastructure increasingly valuable.
The project reflects a broader trend where banks are adapting stablecoin technology to fit within existing financial regulations rather than operating outside them.
Compliance Embedded Into the Network
Unlike many crypto-native payment systems, Hazel incorporates compliance controls directly into the transaction layer.
Built-in blockchain monitoring tools screen wallets and counterparties before transactions are processed. Higher-risk transfers can be flagged or paused pending review by compliance teams.
The approach mirrors the anti-money-laundering and customer verification standards already used throughout traditional banking.
For regulators and financial institutions, these controls are increasingly viewed as essential requirements for large-scale adoption.
Testing Moves Toward Commercial Launch
Custodia and Vantage disclosed that the reference implementation has been operating on Ethereum since March 2026.
According to the project’s latest technical update, the network has completed the first of four production-scale testing phases required before broader deployment.
The institutions are targeting a commercial launch in the fourth quarter of 2026.
Industry recognition has followed the project. Earlier this month, American Banker ranked Custodia CEO Caitlin Long and Vantage Bank CEO Jeff Sinnott among its most innovative leaders in finance, citing their work on the Hazel Network initiative.
Banks Race to Modernize Payments
The development highlights how rapidly the competitive landscape is changing following the emergence of stablecoin legislation.
Rather than competing directly with private issuers such as Circle and Tether, many banks are now developing hybrid models that combine blockchain efficiency with regulated deposit infrastructure.
The result is a growing convergence between traditional banking and digital assets.
If successful, Hazel could provide a blueprint for how banks participate in tokenized finance while maintaining regulatory oversight, deposit relationships and compliance standards that have historically been difficult to replicate on public blockchains.
For the banking industry, the project represents more than a new payment rail. It is an early attempt to define what digital money may look like once stablecoins and traditional deposits begin operating within the same financial framework.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Zdravkov
Reporter at CoinsPress
Alexander Zdravkov is a market analyst and crypto journalist with interests in economics, broader financial markets and digital assets. His journey into crypto began more than four years ago, driven by a fascination with the rapid evolution of blockchain technology and the transformative potential of decentralized finance. He began analyzing market cycles and identifying emerging trends before they reach the mainstream. He holds a degree in International Relations - a background that helped shape his broader perspective on global economics, geopolitics, and the interconnected nature of modern financial markets. Whether covering the latest developments in the crypto sector or exploring broader macroeconomic themes, Alexander focuses on giving readers context rather than simply repeating headlines. During his career, he has authored more than 10,000 articles covering cryptocurrencies, traditional finance, and global market developments. His work spans everything from Bitcoin and altcoins to macroeconomic trends influencing risk assets worldwide.
