Custodia, Vantage propose token that flips deposit and stablecoin

Custodia, a Wyoming-based firm, and Texas-based Vantage Bank proposed a token that changes legal and operational form depending on where it is held. Inside a consortium called Hazel and under control of a participating bank, the token represents a bank deposit. When moved to an external wallet or counterparty outside Hazel, it functions as a stablecoin backed by cash and short-term U.S. Treasurys.

According to a white paper from the firms, the Hazel platform has been running on the Ethereum blockchain since March and is under testing by participating banks. The document describes a shared banking infrastructure intended to support tokenized deposits, stablecoins and other blockchain-based financial assets. The firms expect Hazel to be broadly available to banks and their customers in the fourth quarter of 2026.

Under the proposed design, custody location and control determine the token’s legal status. While a participating bank holds control within the Hazel network, the token sits on that bank’s balance sheet as a deposit. When custody moves outside the network, the token becomes redeemable as a stablecoin backed by cash and short-term Treasurys. The white paper states the platform is meant to run alongside existing core banking systems and payment rails, so participating institutions would not be required to replace current ledgers.

The proposal targets community banks, credit unions and larger banks that want to offer tokenized payments without shifting customer deposits to nonbank stablecoin issuers. By keeping deposits on bank balance sheets while enabling blockchain settlement, the design aims to allow banks to maintain customer funds and use tokenized payment flows.

The plan arrives amid other industry efforts to create tokenized deposit networks. A clearing-house-owned consortium is working on a separate tokenized deposit network with a target launch in the first half of 2027. Some banking groups have opposed legislation that would permit nonbank stablecoin issuers to offer yield-bearing products, arguing those rules could allow nonbanks to compete for deposits without a bank charter.

Market figures show stablecoin supply has grown over the past year, with total market capitalization rising to about $315 billion from roughly $251 billion a year earlier. The white paper describes Hazel as a way for banks to participate in tokenized markets while preserving deposit relationships and operating within existing banking infrastructure.