Stablecoin Developments: Canada's Turn

Canada has released the first draft of its long-anticipated Stablecoin Act as part of the Budget 2025 Implementation Act, marking a major step toward defining the regulatory perimeter for stablecoins in the country, including the issuance of CAD-backed stablecoins. The proposal reflects global momentum for stablecoin regulation. It builds from the U.S. GENIUS Act but introduces stricter controls and stronger supervisory oversight.

In this article, we take a look at the Stablecoin Act, dive into our main takeaways and its implications for the future and explore the latest developments regarding the first Canadian-backed stablecoin.

A First Draft

Stablecoins are defined in the Act as digital assets that are intended or designed to maintain a stable value relative to the value of a fiat currency. The draft legislation sets out a robust compliance framework for stablecoin issuers operating in Canada.

Mandatory Registration and Oversight

Issuers must register with federal authorities and meet ongoing compliance standards overseen in part by the Bank of Canada, which would supervise stablecoin issuers in Canada and maintain a public registry of approved issuers.

Compliance standards required for stablecoin issuers include governance and operational risk management, reporting obligations, consumer protection measures and safeguards against misuse or misrepresentation of reserves.

Amendments were made to the Retail Payment Activities Act (RPAA) to include payment functions involving stablecoins.

Strict Reserve Requirements

Issuers must maintain high-quality, fully backed reserves, ensuring that stablecoins remain redeemable with the aim to protect users from liquidity failures. Assets must be liquid, low-risk and closely monitored, aligning the stablecoin regulatory framework with the Bank of Canada’s emphasis on safeguarding financial stability.

The Act gives holders clear, enforceable rights to redeem stablecoins for CAD through a publicly available redemption policy.

A Limited Securities Exemption

Importantly, the draft legislation clarifies that qualifying stablecoins are not to be treated as securities for the purposes of the Stablecoin Act itself, provided issuers meet the Act’s requirements. However, this exemption is narrow: it does not override provincial securities laws or the CSA.

Rather than exempting stablecoins from securities law altogether, the Act simply establishes a federal prudential regime for issuers. In practice, this offers clarity for federally regulated institutions issuing stablecoins, but does little to resolve the broader regulatory uncertainty faced by platforms, dealers and fintechs operating in Canada’s markets.

Ban on Paying Interest to Holders

Following this distinction, the draft contains a complete ban on interest or yield for stablecoin holders, whether direct or indirect—quite the controversial provision. This makes the Canadian draft stricter than the GENIUS Act by explicitly capturing indirect benefits, which would prevent stablecoin issuers to offer incentives like preferential access to services or products and cashback programs.

Criticisms and Unanswered Questions

Industry actors have raised several concerns, particularly regarding restrictions on yield. The GENIUS Act contains a similar, yet more permissive provision that was also criticized for the ban on yield pay-out, though for both countries, this only seems to apply to issuers and not third-party platforms. Still, this restriction could hinder innovation and make stablecoins less competitive than alternatives.

The Canadian Stablecoin Act draft additionally introduces uncertainty around “indirect” compensation, leaving issuers unsure how to structure partnerships.

Many argue that while consumer protection is essential, overly restrictive rules could limit Canada’s ability to foster a competitive stablecoin ecosystem.

In Other News

Momentum around Canadian-backed stablecoins is accelerating. Alongside Stablecorp’s progress with QCAD, Tetra is now developing its own CAD-backed stablecoin that could operate under the new regulatory regime.

Stablecorp’s QCAD

Stablecorp recently announced that its QCAD token has become Canada’s first fully compliant CAD-backed stablecoin. Built from years of collaboration with the Canadian Securities Administrators, QCAD represents a major step toward mainstream stablecoin adoption in Canada.

By establishing a fully compliant, CAD-backed digital asset under a recognized regulatory framework, QCAD not only sets a national precedent but also positions Canada to more effectively compete with the dominance and headstart of U.S. dollar–backed stablecoins.

Tetra Trust

Tetra Trust, Canada’s first qualified digital asset custodian, is actively exploring the launch of a CAD-backed stablecoin with investments from Urbana Corporation, Wealthsimple, Purpose Unlimited, Shakepay, ATB Financial, National Bank and Shopify. Their focus on compliant custody infrastructure positions them well in a regulatory environment increasingly centered on reserve quality and operational safeguards.

The new Tetra stablecoin will leverage their institutional-grade custody infrastructure to provide businesses and consumers with a stable, secure and fully compliant digital currency.

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Frequently Asked Questions

Are Stablecoins Exempt from Securities Law?

The Stablecoin Act says qualifying stablecoins aren’t treated as securities for the purposes of that Act. But this doesn’t override provincial rules, so stablecoins can still be considered securities or derivatives in Canada.

Can Stablecoin Holders Earn Interest or Rewards from Issuers?

No. The draft Act bans issuers from paying any direct or indirect yield or incentive to holders, making Canada’s rules stricter than the U.S. Genius Act and limiting the ability of issuers to offer rewards, cashback or preferential access.

Can Stablecoins Be Used for Payments Under the New Rules?

Yes, and payment service providers will fall under RPAA oversight when moving or holding stablecoins, adding new operational and reporting obligations.