Caitlin Long, CEO of Custodia Bank, sits down with tech reporter Melinda Lucy to talk about the bank's launch of its on-chain Hazel Network in partnership with Vantage Bank, the stablecoins versus tokenized deposits debate and how the Hazel Network brings the two technologies together under a familiar legal framework for banks.
Transcription:
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Melinda Lucy (
Hello. We're here on site at American Bankers Digital Banking Conference in Orlando, Florida. And I'm here with Caitlin Long, the CEO of Custodia Bank, as she is one of our most innovative people in finance for 2026. Thank you so much for joining me, Caitlin.
Caitlin Long (
What an honor. Thank you for having me again. I really appreciate it.
Melinda Lucy (
Of course. So my first question for you is the project that landed you on the most innovative people in finance list was your partnership with Vantage Bank for issuing a permissionless blockchain stablecoin. I know there's been a lot of discussion in the banking and digital assets world about stable coins versus tokenized deposits. And it sounds like with this project, you brought the two of those together. Can you tell me a little bit more about why you decided to lean into both versus choosing one or choosing the other?
Caitlin Long (
Well, if you were just going to be a tech company, you could be an orchestrator for either stablecoins or tokenized deposits. There are companies out there trying to do that. But because Vantage is a bank with a master account and custodia has a bank charter to be a Genius Act compliant issuer, we married the two together so we can do settlement between ourselves. We're not just a tech platform. It's all dressed up together. And I realized I didn't answer your earlier question about permissionless blockchains, which was a particular focus. We believe that permissionless blockchains are the way to go because there is so much tooling out there and so much ability for developers to build applications on top of it as opposed to trying to reinvent the wheel, which the large banks have historically tried to do by creating walled gardens and trapping the regional and community banks and credit unions into walled garden type systems.
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It just yesterday came out with the announcement about Zelle and so many of the payment systems, Visa, MasterCard, ACH, Zelle have been created by large banks. We think what Vantage and Custodia are doing is the first time a community bank driven payment system has been created in the United States. And there's a simple reason for that. The scale that it took because the cost was so great meant that the big banks had to get together in the past and do this
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As a consortium. We don't think that that's necessary anymore because we've done it. Our system's live and it's ready to scale. We've worked very closely with regulators over the span of almost two years now and we will be live later this year. And this is a community bank driven system. Again, I think it's the first time in US history that a nationwide payment system has bubbled up from smaller banks.
Melinda Lucy (
Absolutely. In your profile, you described the technology as a form of digital cashier's check. Yes. And so using a system that banks are very familiar with. Tell me a little bit more about how that translates over to the day-to-day processing on the bank side.
Caitlin Long (
I'm so glad you asked that because one of the biggest risks, if you try to do something with a typical stablecoin is your lawyers are going to say, "How do I know that I have clear legal title to that dollar, digital dollar?" And the answer is you don't. And that's one of the reasons why traditional banks have stayed away from the tethers, the circles, the PayPal US dollars. In FinTech, risk is easier to take, especially in DeFi, but that
Melinda Lucy (
Is
Caitlin Long (
Not true in the banking world. And so what we've done is actually create, and this is in the white paper as well, a legal structure that lawyers for banks will recognize because it's a well-trodden path. And that legal structure is to use the negotiable instrument legal structure except in digital forms. So lawyers will see this right away. It's UCC Article three, Negotiable Instruments Plus the Uniform Electronic Transactions Act. In states where UCC Article 12, which is the new commercial code that recognizes controllable electronic instruments like digital assets, those states, the legal clarity is greater. But if you go look at the traditional stablecoins, the ones that have been issued in the last five to 10 years, none of them actually make this election clear. They just leave it to the users to figure it out and potentially to fight it out. And if the dispute happens in a state where UCC Article 12 has not been enacted, which is I think 23 states, including some of the biggest ones like Texas,
Melinda Lucy (
Then
Caitlin Long (
The risk is just too great that somebody else had a prior valid claim to that stablecoin. Banks can't take that risk. They just can't. And until there's absolute clarity, the banks will have to stay away. So that is one of the things in our white paper that I think banks will appreciate that we took that issue on because we understand banks have to have clarity before you act and just can't take that risk. It's the biggest impediment to stablecoin adoption in the banking system. That and the fact that the controls are all so - called trust me bro in the backend. And you will find that the controls in the Hazel Network smart contracts are in the actual smart contract itself. The actual OFAC check, to my knowledge, I asked AI over the weekend, are there any other stable coins that have OFAC checks built into the smart contract code?
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Or do those OFAC checks happen off chain in the background? And the answer is every other stable coin does those OFAC checks off chain in the background. We do it on chain. We also have embedded controls where if a high risk wallet is transacting and alerts get thrown off, the transaction is paused. It cannot go to on - chain settlement until the compliance department has cleared the alerts. That's all on chain. We have operational controls that prohibit the issuance of unbacked tokens. So the infamous fat finger $300 trillion accidental mint of a major stable coin in October of last year. It cannot happen in ours because the controls are on chain in the actual smart contract itself. You can go check it today. It's live. So these are the sorts of check the box items that banks require. And it just goes to show this is a network that's built by banks for banks.
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And I think your recognition of that in putting both Jeff Sinat, the CEO of Vantage Bank, our partner and yours truly as number one and number two in your list, it tells you something and we appreciate very much the American Banker Awards Committee for selecting us.
Melinda Lucy (
Absolutely. Once the Hazel network is live, what's next for you?
Caitlin Long (
Honestly, we will probably look at another public permissionless blockchain, but we're going to end up doing whatever the customers tell us. We have had banks approach us about building escrow software. We've built a geolocation tool for a particular user at Vantage that one of their existing customers is a logistics company and they wanted to be able to pay their drivers within one hour of the freight reaching its destination. So we have a geolocation tool that can be built on top of this digital dollar. So I think that you will see that the network building out and we've had banks ask us if they can build their own applications for their own customers and the answer is absolutely yes. And you can sell that software into the rest of the Hazel Network membership as well.
Melinda Lucy (
Got it. Well, thank you so much for your time and congratulations again.
Caitlin Long (
Thank you. Really appreciate it.