Canada is lagging behind in stablecoin policy, but there is still room to catch up.

Source: Cointelegraph Original: "Canada is lagging behind in stablecoin policy, but there is still 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 field.

The Canadian Securities Administrators ( CSA ) officially classified stablecoins as "securities and/or derivatives" after the FTX incident in December 2022 shocked the market and led many lawmakers to turn against the cryptocurrency industry.

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

Of particular concern is the fact that there is a clear gap in the Canadian peer-to-peer (P2P) payments space, and stablecoins are uniquely positioned to fill this gap.

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

In Canada, the CSA (Canadian Securities Administrators) has updated its regulatory provisions for cryptocurrency exchanges and has included stablecoins within its regulatory scope, classifying them as securities/derivatives. This decision has led to widespread dissatisfaction within the Canadian crypto industry.

Morva Rohani, the founding managing director of the Canada Web3 Council, stated in an interview with Cointelegraph that the case-by-case review approach taken by the CSA towards stablecoin issuers, along with the lack of a federal framework, has resulted in a "patchwork" regulatory system.

"Canada relies on securities laws to regulate payment stablecoins, which introduces significant legal and operational uncertainty," she pointed out.

Tanim Rasul, the Chief Operating Officer of the Canadian cryptocurrency exchange NDAX, bluntly stated that the CSA "judgment is incorrect". He believes that other regulatory frameworks, such as the EU's Markets in Crypto-Assets Regulation (MiCA), 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 said to the audience at the Toronto Blockchain Futurist Conference on May 13.

Not only the EU has taken action. Singapore and the UAE have also launched a stablecoin regulatory framework, while U.S. senators are optimistic about passing the stablecoin bill before May 26.

Rohani pointed out that Canada "is out of step with leading global jurisdictions [...] which have adopted customized, prudent frameworks that recognize stablecoins as payment tools."

Some experts are concerned that the lack of policy consistency compared to other jurisdictions that are more supportive of stablecoins may have a negative impact on the Canadian dollar (CAD).

Som Seif, the founder of Canadian investment firm Purpose Financial, stated that the widespread use of other major stablecoins (most of which are pegged to the US dollar) could threaten the position of the Canadian dollar (the nickname for the Canadian currency) domestically.

"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 US dollar, which will undermine the importance of CAD in the global market," he emphasized.

Representatives from Canada's cryptocurrency industry have stated that stablecoins play an important role in the Canadian market, considering the country's alleged lack of peer-to-peer payment networks.

During an interview with Cointelegraph on May 13, Coinbase Canada CEO Lucas Matheson stated, "It is very important to provide stablecoins for Canadians." He pointed out that the only option available at the moment is wire transfer, "which costs $45 and takes 45 minutes to complete the paperwork."

Rohani stated 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 compared to stablecoins, these services usually charge higher fees and have slower settlement times.

Rohani pointed out that although certain 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 Payment 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 diversified digital payment options.

However, this demand may not directly translate into the adoption of stablecoins. The report points out that the path to achieving financial integration of cryptocurrencies among the Canadian public "is still long." About 91% of Canadians have never used cryptocurrencies for payments.

Canadian payment organizations attribute the public's lack of interest in crypto assets to the perception that these assets are considered "the least secure payment method in the eyes of Canadians, compared to alternatives such as cash, credit cards, checks, wire transfers, and PayPal."

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

Even if more customized regulatory policies can integrate stablecoins with mainstream payment options familiar to the Canadian public, this still requires collaborative efforts from Ottawa policymakers, and the Liberal Party has just achieved victory in the federal elections.

The cryptocurrency industry has faced reasons for skepticism. Liberal Prime Minister Mark Carney has previously taken a cautious stance towards cryptocurrencies. In a speech during his tenure as the Governor of the Bank of England, he explicitly stated that cryptocurrencies have failed as a function of money.

However, Carney also acknowledged that stablecoins play a significant role in both retail and wholesale payment sectors. 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 already experienced two systemic crises [...] In baseball rules, it's three strikes and you're out; whereas in cricket, it equates to 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 regulation-led approach to cryptocurrency and stablecoin policy."

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

According to Kohani's analysis, if the Liberal Party comes to power again, the Canadian Securities Administrators (CSA) may continue to dominate enforcement work, while also advancing broader policy development, including a regulatory framework for stablecoins, "especially if stablecoins are positioned as important tools for modernizing payments and maintaining the Canadian dollar's related status."

Related articles: Jim Chanos takes a short position on Bitcoin (BTC) and Strategy.