Banks Move to Bridge Deposits and Stablecoins With New Token Model

• Custodia and Vantage Bank introduced the Hazel Network on June 18.
• A single token can operate as both a bank deposit and a stablecoin.
• Deposits remain inside the banking system while preserving blockchain functionality.
• The platform has been testing on Ethereum since March 2026.
• A broader commercial rollout is expected in the fourth quarter of 2026.

Detailed in a white paper released on June 18, the Hazel Network introduces a unified digital token that can function either as an FDIC-insured bank deposit or as a fully reserved stablecoin, depending on where it is held and transferred. A Single Token With Two Legal Identities At the center of the Hazel Network is a token designed to change its legal and operational status automatically. When held within participating banking institutions, the token functions as a tokenized bank deposit. In this state, the bank remains the obligor and the deposit retains the protections associated with traditional banking infrastructure. When transferred beyond the consortium network, the same token automatically transitions into a stablecoin backed one-for-one by cash reserves and short-term U.S. Treasury securities, aligning with reserve requirements established under the GENIUS Act framework. The process occurs programmatically, without requiring users to manually convert assets or move funds between separate products. Solving the Stablecoin “Deposit Leakage” Problem The Hazel architecture addresses one of the banking industry’s biggest concerns surrounding stablecoin adoption: deposit migration. Traditional banks have increasingly worried that customers moving funds into stablecoins effectively remove deposits from the banking system, reducing liquidity and limiting lending capacity. Hazel’s design seeks to eliminate that friction by allowing deposits to remain within the regulated banking ecosystem while simultaneously enabling blockchain-based functionality. Rather than forcing customers to choose between traditional banking services and digital asset infrastructure, the model combines both within a single programmable instrument. Industry participants view the framework as a potential blueprint for how banks may compete with private stablecoin issuers while preserving existing funding structures. Compliance Embedded Into the Infrastructure Unlike many existing stablecoin models, compliance controls are integrated directly into the network architecture. According to the white paper, blockchain analytics continuously screen wallet activity and transaction destinations before transfers are finalized. Transactions flagged as high-risk can be paused and reviewed by compliance teams before settlement occurs. The approach reflects increasing regulatory expectations as U.S. policymakers move toward stricter oversight of stablecoin issuers under the GENIUS Act framework. By embedding compliance directly into transaction infrastructure, Hazel aims to provide banks with a blockchain-based payments system that satisfies both operational efficiency and regulatory requirements. Live Testing Already Underway The project is no longer theoretical. Custodia and Vantage disclosed that a reference implementation has been operating on Ethereum mainnet since March 2026 as part of a phased testing process. The consortium has completed the first of four planned production-scale testing phases, with additional validation rounds scheduled before broader deployment. Executives involved in the initiative have indicated that the platform remains on track for commercial availability during the fourth quarter of 2026. For banks evaluating stablecoin strategies, the live testing environment provides one of the earliest real-world examples of a tokenized deposit framework operating alongside public blockchain infrastructure. A New Competitive Front in Stablecoin Infrastructure The timing coincides with intensifying competition across the stablecoin ecosystem. Major asset managers including Fidelity, BlackRock and State Street have recently launched reserve-management products targeting stablecoin issuers, while lawmakers continue implementing the first comprehensive federal regulatory framework for dollar-backed digital assets. Hazel approaches the market from a different angle. Rather than competing to issue standalone stablecoins, the network seeks to provide banks with the infrastructure needed to offer blockchain-native payment services without surrendering customer deposits to external issuers. The initiative is already integrated with Infinant’s Interlace banking platform and is being positioned for adoption across a network of hundreds of community and regional financial institutions. Banking and Blockchain Continue to Converge The launch of Hazel underscores a broader shift taking place across the financial industry. As stablecoin regulation becomes clearer and institutional adoption accelerates, banks are increasingly moving beyond experimental blockchain projects toward production-ready payment infrastructure. The significance of Hazel may ultimately extend beyond its technology. If successful, the model could provide a framework for how regulated financial institutions participate in the digital asset economy while maintaining compliance, preserving deposits and leveraging the efficiency advantages of blockchain-based settlement. For the banking industry, the question is no longer whether tokenized dollars will become part of mainstream finance. The emerging debate is who will control the infrastructure that powers them.