As the United States moves forward with integrating digital currencies into traditional finance, a leading global cryptocurrency exchange is urging the Canadian government to follow suit and even surpass those measures, despite growing anxieties surrounding the sector.
Coinbase Global Inc. is actively engaging with Canadian policymakers, hoping to find a government champion who will advocate for the industry, according to Lucas Matheson, who heads the company’s operations in Canada.
“We need our government to recognize the urgency of taking cryptocurrency seriously, embracing the technology, and incorporating it into our existing financial structures,” he stated in a recent interview.
A central focus of this campaign is gaining wider acceptance for stablecoins. These digital assets are designed to maintain a stable value by linking their worth to a traditional currency, commonly the U.S. dollar, and backing it with reserves.
By minimizing the volatility associated with cryptocurrencies, stablecoins aim to function more effectively as a digital form of currency. They offer the potential for quicker and more affordable money transfers, particularly across international borders, although they also come with inherent risks.
One major concern is the lack of transparency surrounding the reserves held by stablecoin issuers like Tether International and Circle Internet Financial, making it difficult to verify their claims without adequate regulation.
A U.S. bill, which is gaining traction, seeks to mitigate these concerns by establishing rules requiring one-to-one backing of stablecoins with either U.S. dollars or short-term government bonds. It also mandates regular financial reporting.
“The U.S. government has established significant credibility, and we hope it will inspire Canadian officials to take similar action,” Matheson stated.
Currently, Canadian regulators treat stablecoins similarly to other crypto assets, classifying them as securities, or investments, rather than forms of payment.
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“We are eager for Canada to develop its own regulatory frameworks and definitions for stablecoins,” Matheson explained.
“Our advocacy efforts in Canada are largely directed towards the federal government, particularly the office of the new Minister of Finance (François-Philippe) Champagne, to highlight the opportunities presented by embracing crypto assets.”
The growing popularity of stablecoins is undeniable.
Tether, the largest stablecoin backed by the U.S. dollar, has witnessed its market capitalization rise from under US$10 billion in 2020 to nearly US$160 billion. Additionally, the company reported profits of US$13 billion last year due to interest earned on its treasury holdings.
The overall market is estimated at around US$250 billion, but could potentially reach US$2 trillion by 2028 as U.S. legislation promotes growth, according to projections from Standard Chartered.
This expansion aligns with initiatives to make stablecoins more accessible to consumers. Shopify, for instance, announced a partnership with Coinbase in June to integrate stablecoins as a standard payment option.
For businesses, stablecoins offer potential cost savings on fees associated with conventional payment methods like credit cards, but the benefits for consumers are less clear.
Matheson acknowledged that the field is still in its early stages, but suggested that companies might use virtual rewards to encourage adoption.
“Imagine a scenario where a Shopify merchant offers an exclusive, token-gated experience requiring an NFT held as part of a loyalty program or previous purchase. Holding this token allows entry to this limited experience, enabling customers to shop with the merchant and receive digital representations of purchased products as warranties, receipts, or collectibles.”
Despite uncertain consumer demand for stablecoins, they have become popular among those engaged in illicit activities.
Chainalysis, a research firm, estimates that illicit cryptocurrency addresses received approximately US$51 billion in stablecoins last year, representing 63% of total illicit crypto transactions.
While proponents like Matheson emphasize the traceability and transparency of blockchain technology, the current level of illicit transactions demonstrates that criminals are finding ways to circumvent these measures through software designed to combine transactions and obscure crypto flows.
Beyond criminal activity, there are increasing concerns about the broader implications of stablecoins becoming a more prominent part of the financial industry.
The Bank for International Settlements (BIS), an organization backed by central banks to promote financial stability, issued a warning last week.
“Continued growth of stablecoins could create risks to financial stability,” according to a BIS report.
In addition to concerns about illegal activities, the report highlighted risks associated with potential failure or collapse of coin issuers, drawing parallels to 19th-century banking practices in the U.S., where individual banks issued their own currency and faced bank runs when customer confidence faltered.
“Society has a choice: build a next-generation monetary system on proven foundations, or risk repeating historical mistakes by experimenting with private digital currencies, which could result in significant societal costs.”
Another concern involves stablecoins acting more like banks by offering interest on holdings, which could pose further stability risks.
U.S. law currently prohibits stablecoin issuers from paying interest, partly due to these concerns, but Matheson is advocating for Canada to lift its similar ban.
“The ability to offer yield on stablecoins is not currently permitted in Canada, but our industry is actively advocating for this with regulators.”
As the cryptocurrency industry seeks to become more integrated into the established financial system, it continues to be plagued by concerns about scams and questionable practices, including crypto initiatives launched by members of former U.S. President Donald Trump’s family.
Matheson maintains that modernizing crypto regulations is the solution.
“Regulatory clarity will ultimately outweigh any temporary behavior or experimentation we are observing in the market.”