Canada lags with stablecoin approach, but there’s room to catch up

Canada is currently lagging behind other major jurisdictions in its approach to stablecoin regulation, but there is potential for the country to catch up.

The Canadian Securities Administrators (CSA) classified stablecoins as securities and/or derivatives in December 2022, following the collapse of the FTX exchange.

This regulatory stance has constrained the growth of stablecoins in Canada, resulting in few local stablecoin issuers and making Canada less competitive compared to regions like the United States, the European Union, Singapore, and the UAE, where more tailored and favorable regulatory frameworks have been adopted.

Industry experts criticize Canada’s approach, arguing that stablecoins should be regulated as payment instruments rather than securities. For example, Tanim Rasul, COO of Canadian crypto exchange NDAX, pointed to the EU’s Markets in Crypto-Assets (MiCA) regulation as a better model, emphasizing that stablecoins are primarily payment tools and should be regulated accordingly.

The current regulatory uncertainty and patchwork framework, as noted by Morva Rohani of the Canadian Web3 Council, introduce significant legal and operational challenges for stablecoin issuers in Canada.

This situation may also threaten the Canadian dollar’s relevance, as consumers and businesses might prefer US dollar-pegged stablecoins if Canada does not develop a supportive regulatory environment for Canadian dollar stablecoins.

There is also a notable gap in Canada’s peer-to-peer (P2P) payment systems, which stablecoins are uniquely positioned to fill by enabling instant, low-cost, and borderless payments.

Currently, Canadians rely heavily on services like Interac e-Transfer and wire transfers, which can be costly and slow. Coinbase Canada’s CEO Lucas Matheson highlighted the importance of having a Canadian stablecoin to address these payment inefficiencies.

Despite these challenges, the Canadian digital asset market continues to grow, and there is growing demand for diverse digital payment methods. However, public adoption of crypto payments remains low, partly due to perceptions of insecurity compared to traditional payment methods.

Canada’s stablecoin regulatory approach has hindered local market development and innovation, but with clearer, more appropriate frameworks inspired by international examples, there is room for Canada to catch up and better leverage stablecoins to enhance its financial ecosystem and maintain the relevance of the Canadian dollar.

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