In a bid to address issues related to the crypto industry, the Canadian Securities Administrators (CSA) has issued a regulatory framework for all institutions involved in the trading of crypto, especially stablecoins.
This action aims to offer enhanced clarity and guidance to crypto trading platforms regarding stablecoins.
Stablecoins are a type of cryptocurrency that aims to maintain a stable value relative to a specified asset, like fiat money, exchange-traded commodities, or another cryptocurrency.
They are designed to reduce volatility relative to unpegg cryptocurrencies like Bitcoin, and they bridge the worlds of cryptocurrency and everyday fiat currency because their prices are pegged to a reserve asset like the U.S. dollar or gold.
Stablecoins can be fiat-collateralized, which are backed by traditional currencies like the US dollar or Euro; or crypto-collateralized stablecoins backed by a reserve of other cryptocurrencies.
The other two types are algorithmic stablecoins which follow algorithms to control their supply in response to market demand; and commodity-backed stablecoins which derive their value from physical assets or commodities like gold, silver, or other valuable resources.
Canada and Crypto
The Canadian crypto market is growing with the presence of stornf firms like Bitbuy, Kyli, QuadrigaCX, Maple, and more driving the market.
According to Statista, the Canadian cryptocurrency market is projected to grow by 14.14% between 2023 and 2027, resulting in a market volume of US$2.4bn in 2027.
Additionally, cryptocurrency exchanges and payment processors are legally recognized as Money Service Businesses (MSB) within Canada, and there has been a growth in Bitcoin ownership among people ages 35 and up.
The new updates from the CSA follows its previous statement on how it sees value-referenced crypto assets such as stablecoins.
The statement that was released in February this year reveals that stablecoins may be classified as securities and/or derivatives.
Additionally, while trading platforms are restricted from dealing with assets categorized as securities and/or derivatives in Canada, the CSA has hinted it will allow such asset to be traded under certain rules and regulations.
The CSA noted that these framework are a result of feedback gotten from the crypto market and is geared towards protecting investors.
It added that issuers of value-referenced crypto assets must maintain an appropriate reserve of assets with a qualified custodian, held for the benefit of crypto asset holders.
Furthermore, they are also mandated to make specific information regarding governance, operations, and asset reserves publicly accessible.
Speaking about the development, Stan Magidson, CSA Chair and CEO of the Alberta Securities Commission, said that the move for “transparency of value-referenced crypto assets about the composition and adequacy of their reserves and their governance” are very vital in addressing protection of investors and the integrity of the market in Canada.
The CSA urges caution among Canadian investors when dealing with value-referenced crypto assets, even those complying with the interim terms and conditions.
These assets carry various risks and should not be equated with fiat currency. Compliance with these interim conditions should not be interpreted as an endorsement or assurance of risk-free investment.