Custodia and Vantage Bank Unveil Hybrid Token Framework

Custodia and Vantage Bank launch the Hazel Network, a hybrid token system blending bank deposits with stablecoins, slated for a broad 2026 rollout.

A new proposal from Custodia Bank and Vantage Bank could represent one of the most ambitious moves in digital finance, merging the characteristics of a bank deposit and a stablecoin into a single digital token.

The two institutions released a technical and regulatory framework for the “Hazel Network.” This infrastructure allows a token to automatically change its legal status based on its location within the payment system. The project has been undergoing live testing on Ethereum since March, with a broader rollout scheduled for the fourth quarter of 2026.

One Token, Dual Functions

Within the banking network, the asset functions as a tokenized deposit. In this capacity, the liability remains with the issuing bank, and the funds can benefit from standard regulatory protections, including deposit insurance.

When the token leaves the banking infrastructure and moves to an external blockchain environment, it automatically transforms into a stablecoin. This version is backed one-to-one by cash and short-term U.S. Treasuries. Developers note that no manual conversion process is required; the change in status occurs automatically through rules embedded in the system.

This model aims to address a primary challenge for traditional banks: the risk of deposits migrating to independent stablecoin issuers. Rather than watching clients move funds to external crypto platforms, banks could offer blockchain-based payments themselves while maintaining control over the underlying deposits.

Preparing for the Stablecoin Regulatory Era

The project arrives as U.S. regulators work toward a clearer framework for digital dollar assets. According to the documentation, the external version of the token is designed to comply with anticipated U.S. stablecoin legislation.

The Hazel Network also features built-in transaction monitoring and blockchain address analysis tools. Potentially risky transfers can be flagged or blocked by compliance departments before they are ever transmitted to the public blockchain.

Developers claim the first of four production testing phases necessary for full system implementation has already been completed.

Pressure on the Stablecoin Market

The initiative highlights growing competition between traditional banks and established crypto firms in the digital dollar sector. The stablecoin market currently exceeds hundreds of billions of dollars and is dominated by major issuers like Tether and Circle.

Custodia and Vantage are betting on a different path that allows regional and community banks to offer programmable payments and blockchain services without sacrificing their deposit base. The network is integrated with Infinant’s Interlace platform and targets a broad group of regional lenders, including banks within the Participate network, which includes approximately 600 financial institutions.

For the banking sector, this could serve as a blueprint for entering the world of tokenized assets. For the crypto industry, it signals that traditional financial institutions are becoming increasingly aggressive in claiming territory within the digital payments space.