Source: Cointelegraph
Original: “Canada Lags Behind in Stablecoin Policy, but There is Room to Catch Up”

The slow adoption of stablecoins in Canada is raising concerns among local cryptocurrency industry observers, who fear that the country is gradually falling behind in this area.

In December 2022, following the FTX incident that shocked the market and led many legislators to turn against the cryptocurrency industry, the Canadian Securities Administrators (CSA) officially classified stablecoins as "securities and/or derivatives."

This policy of regulating stablecoins as securities has resulted in very few local stablecoin issuers, while during the same period, the stablecoin market in the United States and the European Union has seen significant growth as the regulatory environment has gradually loosened. Industry observers point out that this situation puts Canada at a disadvantage in global competition.

Notably, there is a significant gap in Canada's peer-to-peer (P2P) payment sector, and stablecoins have unique advantages that could fill this void.

In 2022, as the cryptocurrency market was thrown into turmoil due to the collapse of FTX and the Terra stablecoin system, global regulators began to scrutinize the crypto space more strictly.

In Canada, the CSA updated its regulatory framework for cryptocurrency exchanges and included stablecoins in its regulatory scope, classifying them as securities/derivatives. This decision has sparked widespread dissatisfaction within the Canadian crypto industry.

Morva Rohani, founding managing director of the Canadian Web3 Council, stated in an interview with Cointelegraph that the CSA's case-by-case review approach towards stablecoin issuers and the lack of a federal framework have led to a "patchwork" regulatory system.

"Canada relies on securities law to regulate payment stablecoins, which introduces significant legal and operational uncertainty," she noted.

Tanim Rasul, COO of Canadian cryptocurrency exchange NDAX, bluntly stated that the CSA "is mistaken," arguing that other regulatory frameworks, such as the EU's Markets in Crypto-Assets (MiCA) regulation, are more suitable for the current situation.

"I just want to say, look at MiCA, see how they handle stablecoins. This is a payment tool and should be subject to appropriate regulation," he told attendees at the Toronto Blockchain Futurist Conference on May 13.

Not only the EU has taken action. Singapore and the UAE have also launched stablecoin regulatory frameworks, while U.S. senators are optimistic about passing stablecoin legislation by May 26.

Rohani pointed out that Canada "is out of sync with leading jurisdictions around the world […] these regions have adopted customized, prudent frameworks that recognize stablecoins as payment tools."

Some experts worry that the lack of policy consistency with other jurisdictions that are more supportive of stablecoins could negatively impact the Canadian dollar (CAD).

Som Seif, founder of Canadian investment firm Purpose Financial, stated that the widespread use of other major stablecoins (most pegged to the U.S. dollar) could threaten the domestic position of the CAD.

"If Canada does not establish a regulatory framework and environment that encourages the development of CAD stablecoins, consumers and businesses will default to using alternatives pegged to the U.S. dollar, which will undermine the importance of the CAD in the global market," he emphasized.

Representatives from Canada's cryptocurrency industry noted that given the country's alleged lack of a peer-to-peer payment network, stablecoins play an important role in the Canadian market.

In an interview with Cointelegraph on May 13, Lucas Matheson, CEO of Coinbase Canada, stated, "It is very important to provide stablecoins to Canadians." He pointed out that the only option currently available is wire transfers, "which cost $45 and take 45 minutes to complete the paperwork."

Rohani mentioned that Interac e-Transfer (Canada's funds transfer service) "remains the primary domestic peer-to-peer payment channel, operating through banks and credit unions."

Canada does have applications like PayPal and Wise that support international peer-to-peer transfers, but these services typically charge higher fees and have slower settlement times compared to stablecoins.

Rohani noted that while some crypto platforms allow peer-to-peer transfers, these features have not been widely adopted due to a lack of integration with mainstream financial services.

According to the 2024 Digital Payments Report by the Canadian Payments System (the owner and operator of Canada's payment clearing and settlement infrastructure), there is a growing demand among Canadians for more diverse digital payment options.

However, this demand may not directly translate into the adoption of stablecoins. The report states that "the road to financial inclusion through cryptocurrency remains long for Canadians." About 91% of Canadians have never used cryptocurrency for payments.

The Canadian Payments Organization attributes the public's lack of interest in crypto assets to the perception that these assets are "the least secure payment method in the eyes of Canadians, compared to alternatives like cash, credit cards, checks, wire transfers, and PayPal."

Even in the context of central bank digital currencies (which the crypto industry often views as less favorable than privately issued, fiat-pegged stablecoins), public interest remains low. Surveys show that 85% of respondents "indicated they would not consider using a Canadian digital dollar, preferring to continue using existing payment methods."

Even if more customized regulatory policies could integrate stablecoins with mainstream payment options familiar to Canadians, this would still require collaborative efforts from policymakers in Ottawa, especially after the Liberal Party recently won the federal election.

The cryptocurrency industry has had reasons to be skeptical. Liberal Prime Minister Mark Carney previously held a cautious stance towards cryptocurrencies. In a speech during his tenure as Governor of the Bank of England, he explicitly stated that cryptocurrencies have failed as a form of money.

However, Carney also acknowledged the important role of stablecoins in retail and wholesale payments. He stated in 2021 that stablecoins should be allowed to use central bank balance sheets—provided that strong protective mechanisms are established.

"In just over a decade, money market funds have experienced two systemic crises […] in baseball, it's three strikes and you're out; in cricket, it's only one chance. For a systemic payment system, one crisis is already too much," Carney emphasized.

Kohani stated, "With Mark Carney at the helm of the Liberal Party, we expect to see a pragmatic but regulatory-led approach to cryptocurrency and stablecoin policy."

Although Carney's previous openness towards stablecoins indicates his willingness to embrace the technology, he simultaneously "emphasized the necessity of establishing a regulatory framework, implementing oversight, and ensuring safeguards."

According to Kohani's analysis, if the Liberal Party returns to power, the Canadian Securities Administrators (CSA) may continue to dominate enforcement efforts while also advancing broader policy development, including a stablecoin regulatory framework, "especially if stablecoins are positioned as important tools for modernizing payments and maintaining the relevance of the CAD."

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