Custodia Bank and Vantage Bank have announced a tokenized payment solution that attempts to integrate bank deposits and stablecoins into the same asset structure. The two companies stated that the system has been running on Ethereum since March of this year and is currently undergoing testing with participating banks, with plans to open it to banks and customers in the fourth quarter of 2026.
The same token can have two forms.
According to the white paper released on June 18, this token will switch between legal and operational attributes in different scenarios.
Within the Hazel banking network, it is treated as a deposit issued by participating banks. Once transferred to users or platforms outside the alliance, it transforms into a stablecoin backed by cash and short-term U.S. Treasury bonds. In other words, the asset itself remains continuous, but its legal status changes depending on its location.
Continue using the existing banking system
Custodia and Vantage stated that the Hazel network targets tokenized deposits, stablecoins, and other on-chain financial assets, aiming to enable banks to offer blockchain payment services on top of existing infrastructure, rather than rebuilding the entire core system.
The white paper states that Hazel can run in parallel with existing core banking software, payment channels, and ledger systems. Participating institutions can access on-chain payment capabilities without requiring large-scale modifications to their back-end systems.
The two companies stated that the solution targets financial institutions of all sizes, including community banks and credit unions. One of its design principles is to keep customer deposits within the regulated banking system, rather than allowing them to flow to third-party stablecoin issuers.
The banking industry is accelerating the deployment of deposit tokenization.
As the use of stablecoins in payments and settlements expands, the banking industry is accelerating its search for alternatives. Tokenized deposits have therefore become a topic of much discussion recently.
The Wall Street Journal reported earlier this month that The Clearing House, owned by institutions such as JPMorgan Chase, Bank of America, and Citigroup, is preparing a tokenized deposit network, which could launch as early as the first half of 2027. This system also aims to represent customer deposits in blockchain format for payment settlement.
Meanwhile, some banking groups oppose allowing stablecoin issuers to offer interest-bearing products. JPMorgan Chase CEO Jamie Dimon recently stated that the banking industry will continue to oppose certain provisions of the U.S. Crypto Markets Structure Act, the CLARITY Act, because these arrangements could allow crypto companies to compete for deposits without banking licenses.
According to DefiLlama data, the stablecoin market size has grown from approximately $251 billion a year ago to approximately $315 billion. This growth also explains why banks are more actively promoting on-chain payment and deposit tokenization solutions.
Additional information:For Custodia, prior to the launch of Project Hazel, the company had been embroiled in years of disputes with regulators over access to the traditional payment system. In March of this year, the U.S. Court of Appeals for the Tenth Circuit did not allow it to resume its lawsuit against the Federal Reserve, after regulators had previously rejected the bank's application for a master account.
