Stablecoin platforms are clearly in the crosshairs of the Canadian Securities Administration (CSA), which comprises the securities regulators of Canada's 10 provinces and three territories, and has released a long list of new requirements for cryptocurrency companies looking to remain legally compliant. Wire.
Crypto asset trading platforms within the country will now be prohibited from allowing customers to buy or deposit stablecoins or other “value-referenced crypto assets” (VRCAs) without the CSA’s prior written consent. Obtaining consent means meeting many of the due diligence requirements of administrators, including ensuring that the stablecoin is fiat-backed.
“For greater certainty, we do not wish to provide consent for a VRCA that is not fully backed by an appropriate reserve, but maintains its value algorithmically,” the regulator wrote in a notice published on Wednesday.
Stablecoins are cryptocurrencies that are designed to maintain a relatively "stable" value, usually referring to assets that are not normally volatile, such as fiat currencies.
However, Canadian regulators prefer to use the term VRCA because some so-called “stablecoins” have not been as stable in the past. Last May, formerly the third-largest stablecoin by market capitalization, TerraUSD (UST), lost its peg to the U.S. dollar entirely after flaws surrounding its peg algorithm sent it into an irreparable death spiral.
More traditional fiat-backed stablecoins, such as USDT, USDC, and BUSD, use fiat-denominated reserves to provide continuous convertibility for their tokens and maintain a stable price.
The CSA requires trading platforms to only allow buying and selling of such tokens if their reserves consist of “highly liquid assets” (cash and cash equivalents) held by qualified custodians. They must also be subject to monthly reviews by independent auditors and must be published "in a timely manner".
The distribution of these tokens must also comply with Canadian securities regulations because, according to the notice, “fiat-backed cryptoassets generally meet the definition of securities.” Even if someone somehow manages to get consent, the definition is equally flexible for algorithmic stablecoins.
“Similar to fiat-backed crypto assets, we generally consider VRCAs pegged to or backed by assets other than fiat currencies to be securities and/or derivatives,” the notice said. This would include assets backed by other cryptocurrencies such as Wrapped Bitcoin (WBTC).
While the CSA acknowledges use cases for stablecoins, such as payments and volatility hedging, it also considers them riskier than fiat currencies even those that regulators allow crypto platforms to trade with. "Any consent given should not be considered a statement that VRCA has distributed pursuant to Canadian securities legislation," it added.
In the U.S., the SEC issued a Wells Notice to Paxos earlier this month, claiming that its BUSD stablecoin is an unregistered security a position that has been contested by many in the industry.
