Canada’s lagging approach to stablecoins threatens its competitiveness.
The slow adoption of stablecoins in Canada has raised concerns among local crypto industry observers that the country is falling behind its global counterparts. A pivotal moment in this situation occurred in December 2022 when the Canadian Securities Administrators (CSA) classified stablecoins as “securities and/or derivatives.” This decision followed the devastating collapse of FTX and the Terra stablecoin system, leading to increased regulatory scrutiny of the cryptocurrency industry and prompting many lawmakers to question the viability of crypto assets. The CSA’s classification has significantly hampered the growth of stablecoins in Canada, largely due to the lack of a federal framework and a case-by-case approach to issuer regulation, creating a “patchwork” regulatory regime, according to industry experts.
This regulatory stance contrasts sharply with developments in other jurisdictions. The United States and the European Union have seen substantial growth in the stablecoin market as regulators have softened their approach, adopting tailored, prudential frameworks that recognize stablecoins as payment instruments. The EU’s Markets in Crypto-Assets (MiCA) law, for instance, offers a more appropriate regulatory approach than the CSA’s more cautious tactics. Singapore and the UAE have also introduced regulatory frameworks for stablecoins, and US senators remain optimistic about passing a stablecoin law by mid-May. This international divergence poses a significant challenge for Canada’s crypto industry.
The lack of a robust Canadian stablecoin ecosystem is particularly concerning because of the potential for improved peer-to-peer (P2P) payments. Globally, stablecoins have experienced significant growth over the past five years, driven by their efficiency and lower transaction costs compared to traditional payment methods. In Canada, however, the current situation leaves a gap in the P2P payment landscape. Currently, Canadians primarily rely on wire transfers through services like Interac e-Transfer, which are often burdened with $45 fees and 45-minute processing times. The Canadian crypto industry believes stablecoins could provide a faster, more cost-effective solution, but this potential remains largely unrealized.
Several industry leaders have voiced this concern. Coinbase Canada CEO Lucas Matheson emphasized the importance of a Canadian stablecoin for Canadian consumers, highlighting the limitations of existing options like wire transfers. Morva Rohani, founding managing director of the Canadian Web3 Council, points out that Interac e-Transfer remains the primary domestic P2P rail, operating through banks and credit unions. However, even with PayPal and Wise offering international P2P transfers, these services often come with high commissions and slow settlement times. Concerns about security and the perception of crypto assets as the “least secure payment method” among Canadians—a sentiment echoed by Payments Canada’s 2024 digital payments report—have also contributed to the lack of adoption. This report revealed that only 91% of Canadians have never used cryptocurrency as a payment method, despite the overall growing demand for more and diverse digital payment methods.
Payments Canada’s findings further illustrate the challenges. The report highlighted that a significant portion of Canadians, 85%, “did not envision themselves using a digital Canadian dollar and preferred their existing payment methods.” The demand for secure and convenient payment solutions remains strong, and while the introduction of blockchain technology continues to gain traction, stablecoins haven’t yet managed to overcome the lingering concerns about security. The debate surrounding central bank digital currencies (CBDCs) adds another layer of complexity, with many in the crypto industry viewing them as a less favorable alternative to privately issued, fiat-denominated stablecoins.
Looking ahead, the potential for broader policy work around stablecoins is increasing. With Liberal Prime Minister Mark Carney at the helm, industry experts anticipate a “pragmatic but regulation-first approach.” While Carney has previously expressed skepticism about cryptocurrency in general – noting that it has failed as money – he acknowledges the potential role of stablecoins in retail and wholesale payments, particularly if they are equipped with strong protections. “There’s been two systemic crises in money funds in little more than a decade […] In baseball, it’s three strikes and you’re out. In cricket, it’s only the equivalent of one. For systemic payment systems, one is too many,” Carney stated in 2021. Given the Liberal Party’s recent election victory, there’s a heightened expectation that the Canadian Securities Administrators (CSA) will continue to lead enforcement efforts, but could also result in broader policy work, including a framework specifically addressing stablecoins, particularly if positioned as a tool for payments modernization and maintaining the relevance of the Canadian dollar.
