In a recent letter, a broad swath of cryptocurrency players operating in Canada have called on the Canadian Securities Administrators (CSA) to rethink its approach to regulating fiat-backed stablecoins.
The February 5 letter, which has been signed by 21 businesses and nonprofits that use such tokens, argues that the CSA, Canada’s umbrella markets regulator, should develop stablecoin rules in concert with industry stakeholders and the federal government. Its signatories include the Canadian Web3 Council, American crypto exchanges Coinbase and Kraken, and local counterparts Wealthsimple and WonderFi.
This marks the Canadian crypto sector’s second joint letter taking issue with Canadian securities regulators’ plans to treat stablecoins as securities or derivatives—and it comes less than two months before the April 30 deadline for platforms to either comply with the CSA’s fiat-backed stablecoin requirements or cease offering these specific digital assets altogether.
“Under the CSA’s rules, stablecoins will effectively be banned across Canada, which presents a major barrier to this innovative technology’s adoption.”
Mark Greenberg, Kraken
The letter urges the CSA to rescind or defer that deadline, modify its requirements for crypto platforms, and launch a public consultation regarding how to regulate issuers of fiat-backed stablecoins.
“By treating fiat-backed stablecoins as securities or derivatives and attempting to impose additional requirements that are out of step with other major jurisdictions, the CSA’s approach will almost certainly exclude virtually all fiat-backed stablecoins from Canada,” states the letter.
The value of stablecoins is pegged to that of another reserve asset beyond crypto. In the case of fiat-backed stablecoins, that asset is a fiat currency, typically the United States dollar.
Designed to serve as a more predictable type of digital asset within the volatile world of crypto, stablecoins can be bought, sold, traded, and used to pay for goods and services. However, they have not always been as stable as their name suggests.
After the collapse of numerous unregulated crypto trading platforms in 2022, the CSA has levied more restrictions on exchanges operating in Canada, seeking to protect investors and prevent another FTX debacle. These steps have included a crackdown on stablecoins, which the CSA has stated “generally meet the definition of ‘security.’”
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“We are deeply concerned by the CSA’s approach of treating fiat-backed stablecoins as securities and/or derivatives under Canadian securities laws,” Canadian Web3 Council executive director Morva Rohani told BetaKit, arguing that because fiat-backed stablecoins are used primarily for payments rather than investment or speculation, they should not fall under the purview of Canadian securities laws.
According to the letter, Canadian businesses use stablecoins to receive payments from customers, pay suppliers and contractors, process payments for online merchants, provide remittance services, and exchange them with other Canadian businesses and consumers.
Rohani believes that the CSA’s current approach to regulating stablecoins stands to “[limit] the access of Canadian businesses and consumers to a fast, low-cost form of cross-border payments and [prevent] innovative businesses from being built.”
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Mark Greenberg, Kraken’s Canadian managing director and global head of asset growth management, echoed Rohani’s concerns. “Under the CSA’s rules, stablecoins will effectively be banned across Canada, which presents a major barrier to this innovative technology’s adoption,” Greenberg told BetaKit.
Given this, the Canadian Web3 Council, Kraken, and the letter’s other signatories are asking for the CSA to launch a public consultation to find an approach that both protects investors and permits businesses to continue using stablecoins in Canada.
“Canada has an opportunity to play a leading role in the growth of cryptoassets,” argued Greenberg. “That said, it should work towards more coordinated action around stablecoins, so as not to be left out of this important part of the crypto ecosystem.”
Feature image courtesy Coinbase.