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Stablecoins are widely seen as one of the first major digital-asset breakthroughs, yet the intersection of the fiat economy and blockchain is still fraught with inconsistencies and risk. One example: banks have to work with a custodian that holds specific securities certifications if they want to accept stablecoins as loan collateral, adding cost and complexity to the business.
Yet what if a stablecoin was structured to mimic an asset that banks trade with daily? That was the idea behind the Hazel Network and its stablecoin, Avit, that was built in part by Caitlin Long, founder and CEO of Custodia Bank.
"It's a digital cashier's check, which has the same legal structure as a paper cashier's check," Long, referring to Avit, said in an interview. "We're basically taking a legal structure that banks are very familiar with and comfortable with and porting it into a digital realm."
Long is hoping the effort, a partnership with the Texas-based Vantage Bank, sets Hazel apart in a crowded and highly competitive market. Avit made news last year when it became the first bank-issued stablecoin on a permissionless network (Ethereum), and has been used so far in proofs-of-concept.
In 2021 Custodia raised $37 million in funding, followed by $7 million more the following year. Total investment is at $53 million from investors that include Coinbase Ventures, Morgan Creek Digital and Susquehanna Private Equity. It's been rough sledding for the startup, which suffered under the Biden Administration's Choke Point 2.0 operation, where Custodia was de-banked. A quarter of its staff was laid off in 2024, though the bank hired some back last year, Long said.
Custodia has also been fighting the Federal Reserve in court for years to be granted a master account with the central bank, yet to no avail. There may be a light at the end of the tunnel, however, for Custodia. The digital-banking unit of Kraken, also based in Wyoming, was granted limited Federal Reserve access on March 4.
Custodia and Vantage are still testing Hazel by sending small amounts of digital payments to each other over the network; they hope to expand to include their partner banks in the second quarter. Long said the idea for Avit was always to have it be native to the banking world; she's taken the path of seeking permission over asking forgiveness in building Custodia and working with Vantage.
Her Wall Street background comes through when she speaks of community banks as traditionally being "takers" of innovation, rather than "makers," or the ones creating it.
"This is the first time that the small banks are actually makers of payment innovation," she said.
Long has been around and knows there's a need for digital assets to remake the banking system. She cites a study a few years ago that found that 88 percent of the money that left the banking sector to go to Coinbase during the 2020 crypto bull run never came back into the system. That's due to the many frictions that still exist between the traditional banking world and its digital counterpart, Long said.
"We don't want to build barriers," Long said. "We want to reduce frictions."
Vantage has been a crucial partner in Hazel, according to Long. Its CEO, Jeff Sinnott, worked previously as a software developer, which helped him see the potential of bringing digital wallets inside the traditional banking world, Long said.
"I'm very grateful, because it was Vantage's idea to work on this together," Long said. "They understood we had infrastructure that Vantage didn't have, and Vantage had customers and experience that Custodia didn't have in the banking industry."
