Canada Announces Stablecoin Regulation Plan in 2025 Federal Budget

Canada is now taking steps to regulate the fiat-backed tokens. Canada’s 2025 federal budget has unveiled plans to establish new stablecoin regulation to harness the potential of these assets while mitigating associated risks.

According to the budget document, the forthcoming legislation will require stablecoin issuers to maintain adequate reserves, implement clear redemption policies, establish sound risk management practices, and ensure user data protection. This new regulatory framework will forge the future of digital payments in Canada and follows a trend of the Canadian government and financial regulators closely observing the possible opportunities and risks associated with fiat-backed cryptocurrencies.

Canadian Stablecoin Regulation: Key Details to Watch

Canada’s federal budget for 2025 has introduced plans to regulate fiat-backed stablecoins, replicating the USA’s GENIUS Act initiative. This is part of an effort to foster safe innovation and protect users as the digital asset ecosystem rapidly grows.

Stablecoins will be part of a bigger framework to modernize payments to improve the speed and security of financial transactions. Cryptocurrency issuers that are tied to fiat, like the Canadian dollar or the U.S. dollar, will need to maintain appropriate reserves and must operate under strict national security requirements. The document read,

“The legislation will also include national security safeguards to support the integrity of the framework so that fiat-backed stablecoins are safe and secure for consumers and businesses to use.”

The Bank of Canada will oversee the new stablecoin regulatory framework, with a $10 million allocation over two years starting in 2026-27. The ongoing annual costs of $5 million will be covered by fees from regulated stablecoin issuers.

Also, the Canadian government is in the process of revising the Retail Payment Activities Act to take regulatory oversight of payment service providers using stablecoin. This would create proper control and guidelines for stablecoin transactions as a method of consumer protection and financial stability.

Will Canadian Stablecoin Regulation Address Risks and Vulnerabilities?

The Canadian budget’s anticipated framework for regulating stablecoins is a clear acknowledgment of the risks posed by the stablecoin digital asset class. As a recent and striking example, TerraUSD (UST) lost its peg to the US dollar and saw over $60 billion in market capitalization evaporate, demonstrating the instability inherent in the stablecoin market.

As Chainalysis states, even stablecoins that are well-positioned and widely used in everyday transactions – such as USDC and DAI – are subject to risks. Citing the Euler Finance hack and Curve Finance exploit as notable examples, Chainalysis stated,

“These cases show how stablecoin-related breaches can cascade across decentralized finance (DeFi), centralized exchanges, and even institutions with crypto exposure…A significant depegging event could compel institutions to realize losses, with knock-on effects for their conventional operations.”

Stablecoins Gain Global Momentum

Significantly, Canada’s stablecoin regulation and acceptance aligns with a global trend, following the US’s lead in passing the GENIUS Act, which established key rules for dollar-backed cryptocurrencies. The movement towards clear regulations is reflected in Europe’s Markets in Crypto-Assets Regulation (MiCA) and the work being done in Japan and South Korea.

The world of stablecoins, which is now worth roughly $309.1 billion, is expected to see impressive growth, with the most optimistic buyers predicting a whopping $2 trillion market by 2028. Besides that, Standard Chartered predicts that up to $1 trillion could shift from emerging market bank deposits to US dollar-backed stablecoins.

Conclusion

Canada’s determination to set up regulations for fiat-backed stablecoins is a major move towards the equilibrium of innovation and stability in the digital finance world. By instituting specific regulations, oversight, and consumer safeguards, Canada intends to instill trust in digital payments and at the same time be a part of the global regulation trend that is growing larger.

Frequently Asked Questions

1. What is the rationale for Canada’s new stablecoin regulation?
   To ensure that stablecoins are safe, transparent, and fully-backed by reserves.
2. Who is going to be in charge of the stablecoin framework in Canada?
   The Bank of Canada will regulate and supervise the stablecoin issuers.
3. How does Canada’s approach stack up against international approaches?
   It is consistent with broader efforts worldwide, including in the US GENIUS Act and Europe’s MiCA framework.

Glossary

• Stablecoin: It is a form of digital money that gets its value from a reliable asset, such as a fiat currency, in order to prevent price fluctuations.
• Fiat-backed stablecoin: It is a kind of digital money that derives its value from the physical reserves of fiat currencies like Canadian and U.S. dollars.
• GENIUS Act: A U.S. legislative measure that provides a framework for dollar-backed stablecoin regulation.
• MiCA (Markets in Crypto-Assets): The EU’s regulatory mindset towards cryptocurrencies generally and towards stablecoins specifically.
• DeFi (Decentralized Finance): An economic system that relies on blockchain technology and does not involve conventional intermediaries like banks.

Read More: Canada Announces Stablecoin Regulation Plan in 2025 Federal Budget">Canada Announces Stablecoin Regulation Plan in 2025 Federal Budget