Industry stakeholders are already pushing to create a Canadian-dollar pegged stablecoin. In fact, they’re concerned that stablecoins are getting an increasingly critical foothold in the financial ecosystem. Canada does not currently have a stablecoin pegged to the Canadian dollar. Consequently, a huge wave of capital is fleeing into U.S. dollars and U.S. government bonds. As the global stablecoin market races ahead, Canadian regulators are trying to understand how these innovations affect our own national financial stability.
As such, stablecoins aim to replicate real-world currencies, not substitute them. That’s because their rapid modern expansion has stretched alarm bells in regulators about risk they might pose Canada’s financial system. Peter Routledge, head of Canada’s banking regulator, expressed his apprehensions regarding this fast-evolving sector, emphasizing the need for vigilance in monitoring its developments.
As in the US, regulatory approaches to stablecoins are rapidly developing in Canada. The country’s monetary authorities have pursued an approach that is less prescriptive and more flexible, engaging with all prospective stablecoin issuers one by one. This flexibility is intended to allow DOT to quickly adapt to the ever evolving nature of the crypto market. Benoit Sabourin, a negotiator for the Canadian government, stressed that there is an increasing need for immediate action. He told us that Canada is in desperate need of a clear framework to regulate stablecoins. He added that their government had, and was, working closely with federal and provincial regulators. Together, they are accounting for transit-related risks and determining how to protect against them while continuing to take advantage of opportunities.
Tetra Digital Group is leading efforts to roll out a Canadian-dollar pegged stablecoin. The firm’s intending to issue its own stablecoin in the first quarter of next year. It’s already put together a $10 million round of financing with some big name backers including Wealthsimple, National Bank, ATB Financial and Shopify. Didier Lavallée, chief executive of Tetra Digital Group, made the case for a Canadian stablecoin from a sovereignty perspective. At the very least, from a national sovereignty point of view, Canadians should want a Canadian stablecoin,” he added.
So the lack of a Canadian-dollar pegged stablecoin raised fears of capital flight. Experts estimate that if just 5% of Canadian bank deposits were transferred into U.S. stablecoins, it could eliminate as much as $675 billion in domestic lending capacity. Timothy Lane, former deputy governor of the Bank of Canada, highlighted the growing significance of stablecoins. He continued, “Stablecoins are growing too big to fail.”
In spite of the stablecoin market buoyed by positive projections for growth, some Canadian officials are skeptical. Grant Vingoe, head of the Ontario Securities Commission, expressed uncertainty regarding the widespread adoption of stablecoins as a payment mechanism. “I think that’s really an open question, whether or not they become the payment mechanism of choice,” he continued.
We applaud Vingoe for raising these vital concerns regarding stablecoins. He stressed the ways they could be used to encourage illegal activity, making their regulation even more difficult. Conversations are happening across Canada about the future of digital currencies. Our stakeholders recognize the need to find and establish dynamic new regulatory frameworks.
Unlike Canada’s still-growing discussions, the United States has already succeeded in setting firm ground rules when it comes to stablecoins. This political clarity has lent significant muscle to the prevailing dominance of the U.S. dollar. It will undoubtedly influence how Canada regulates and develops in this space going forward.
The global stablecoin market is expected to experience extraordinary growth in the next several years. Such an unprecedented global surge is forcing countries such as Canada to reconsider their approach. Even swift, the entity that underlies the flows of global banking, is getting in on the act with blockchain solutions to make cross-border payments faster. This trend, if substantiated, would highlight the need for Canada to establish its own digital currency infrastructure, independent of foreign actors.
As Tetra Digital Group launches stablecoin, folks across industry watch closely for regulatory clues. A more focused form of engagement between regulators and issuers is therefore essential and urgent. What struck me most was the emphasis John Ruffolo put on the need for a targeted, focused and direct to the point engagement approach. He thinks it’s wiser to signal your concerns and needs than to attempt to rustle every detail into the legislation forever.
