A Calgary-based company has launched the first Canadian dollar-backed stablecoin issued by a financial institution, a bid to tap into growing demand for digital currencies that aren’t tied to the U.S. dollar.
Stablecoins are a type of cryptocurrency intended to be less volatile by being pegged one-to-one to a currency like the U.S. dollar or a commodity. It allows payments to be sent instantly and can potentially cut down on time and costs involved in cross-border transactions.
Tetra Digital Group said its digitized dollar, which is being unveiled Monday, operates under a different regulatory framework from competitors, making it easier for businesses and consumers to adopt it for payments.
Called CADD, the stablecoin backed by Canadian dollars received regulatory approval from Alberta Treasury Board and Finance, promising to advance near-instant fund transfers between businesses and across borders.
Canadian companies are racing to modernize payments, with more businesses adopting stablecoin technology, but doing so largely in U.S. currency.
“That limits the demand for Canadian dollars,” said Felipe Priuli, Tetra’s program director for CADD. “Shouldn’t we be able to give them a way to do it that benefits Canadians and Canada?”
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While other Canadian stablecoins exist, their status as securities can limit their adoption, said Mr. Priuli. “Everyone that wants to interact with the token … they risk being seen as a securities dealer."
Tetra’s digital dollar, on the other hand, is issued by a trust company regulated by Alberta’s provincial authority, meaning it’s treated more like a traditional financial product from a regulated institution, not like an investment security.
If someone holds one token, the company legally owes them one Canadian dollar, said Lori Stein, co-lead of the fintech group at McCarthy Tétrault LLP, a firm that also serves as regulatory counsel to Tetra Trust Company. “It’s a direct liability of the financial institution.”
Stablecoins can generally be obtained from an issuer or cryptoexchange – a type of marketplace for digital currency – for money deposits or by swapping other cryptocurrencies. These can then be sent to a digital wallet for use on blockchains, a type of digital ledger.
On the retail side, platforms such as Shopify already allow merchants to accept USDC stablecoin, which is pegged to the U.S. dollar, through a blockchain network built by third-party companies.
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For years, however, digital currencies in Canada have faced adoption hurdles by being treated as securities, which are under the jurisdiction of provinces and territories, and involve administrative and transactional barriers.
Issuers and advocates have pushed for stablecoins to be considered a payment instrument akin to cash or credit, letting users send them as quickly as they can text, while avoiding foreign transaction fees.
This sticking point became a focus in the development of Canada’s Stablecoin Act, which received royal assent in March.
The act was long-awaited by stablecoin proponents, who believed clear rules were critical for Canada to catch up in the global race to modernize payments. The U.S. made leaps after laying out a framework for policing stablecoins last summer through the Genius Act.
Canada’s rules took inspiration from that legislation but fell short of explicitly saying that stablecoins are not securities.
Tetra, however, said CADD avoided some of the barriers involved with securities. Since it’s issued by a regulated trust company – a financial institution that holds assets on others’ behalf under strict legal obligations – it falls outside of securities laws.
Stablecoin usage has been ramping up in recent years globally, with market capitalization – often measuring an industry or asset’s size and health – growing roughly ten times since 2020 and surpassing $400-billion this year, according to Deloitte.
But consumer adoption is still lagging. According to a Kansas City Federal Reserve Bank study published in April, less than one per cent of stablecoins are used for payments, and about a fifth aren’t being used at all. Often, stablecoins serve as trading assets used as collateral for lending or as a store of value.
But backing for CADD – through partnerships and investment – from major financial players such as Wealthsimple, National Bank of Canada and Shopify can help expose millions of users to the token, said Mr. Priuli. With Shopify, for example, “you pretty much access every merchant in Canada.”
“In terms of demand, I think it’ll mostly come from business-to-business transactions from the get-go,” said Mr. Priuli. But, he said, regulatory clarity and wider business adoption will eventually build traction on the retail side.