Custodia and Vantage test dual purpose token for bank deposits and stablecoins

Custodia Bank and Vantage Bank have unveiled a tokenized payments model that has combined bank deposits and stablecoins into a single asset, with plans to make the network available to banks and customers in the fourth quarter of 2026.

According to a white paper published on June 18, the proposed token changes its legal and operational form depending on where it is held. Inside the Hazel banking network, it functions as a bank deposit issued by a participating institution. Once transferred to external users or platforms outside the consortium, it becomes a stablecoin backed by cash and short-term U.S. Treasury securities.

Custodia and Vantage said the system has been operating on Ethereum since March and is currently undergoing testing with participating banks ahead of a planned launch later this year. The companies said Hazel is designed to support tokenized deposits, stablecoins and other blockchain-based financial assets through shared banking infrastructure.

Rather than requiring banks to overhaul existing systems, the white paper stated that Hazel operates alongside current core banking software, payment rails and ledger infrastructure. Participating institutions can continue using their existing systems while offering blockchain-based payment services.

The proposal arrives as banks search for ways to enter tokenized payments while retaining customer deposits within the regulated banking sector. Custodia and Vantage said the platform is intended for institutions of all sizes, including community banks and credit unions, allowing them to participate in digital asset payments without moving deposits to third-party stablecoin issuers.

Banks advance tokenized deposit plans

Across the banking sector, financial institutions have increasingly explored tokenized deposits as an alternative to traditional stablecoin models.

Earlier this month, The Wall Street Journal reported that The Clearing House, whose owners include JPMorgan Chase, Bank of America and Citigroup, is preparing a tokenized deposit network that could launch in the first half of 2027. According to the report, the system would allow banks to settle payments using blockchain-based representations of customer deposits.

At the same time, banking groups have opposed proposals that would permit stablecoin issuers to offer yield-bearing products. JPMorgan CEO Jamie Dimon recently said banks would continue challenging provisions in the CLARITY Act, a U.S. crypto market structure bill that he argued could allow crypto firms to compete for deposits without obtaining bank charters.

DefiLlama data shows the stablecoin sector has grown to roughly $315 billion from about $251 billion a year earlier, underscoring the increasing role of blockchain-based dollar assets in payments and settlement activity.

For Custodia, the Hazel initiative also arrives after years of regulatory disputes over access to the traditional banking system. In March, the U.S. Court of Appeals for the Tenth Circuit declined to revive the bank’s challenge against the Federal Reserve after regulators denied its application for a master account. 

Custodia had argued that direct access to Federal Reserve payment infrastructure would allow it to provide settlement services without relying on intermediary banks, while regulators cited concerns related to its crypto-focused business model.