Canadian Central Bank emphasizes need for stablecoin regulation

• The global market for fiat-referenced crypto assets increased 30-fold between the beginning of 2020 and mid-2022.
• The top three fiat-referenced crypto assets currently control 90% of the total fiat-referenced crypto asset market.

The Canadian central bank on 20 December issued an analytic note on fiat-referenced crypto assets, also known as stablecoins.

The note mentions its authors supporting additional regulation for crypto assets, as well as a review of mechanisms for creating and distributing stablecoins. It also includes a list of possible risks and benefits.

The global market for fiat-referenced crypto assets increased 30-fold between the beginning of 2020 and mid-2022, reaching $161 billion. They are mainly used on crypto trading exchanges, the note states. But they have the potential for a wide variety of other uses, especially in combination with smart contracts.

These crypto assets could bring efficiencies and greater competition to payment services, especially in a more digitalized economy. However, they could pose significant risks to the financial system’s stability without safeguards.

The top three fiat-referenced crypto assets currently control 90% of the total fiat-referenced crypto asset market. Similarly, the top 1% of investors own 90% or more of the total supply of major fiat-backed crypto assets. Due to this concentration, impacts on those coins and holders could have a disproportionate impact on the economy as a whole.

The regulatory regime not adequate

The analytic note also states that most existing regulatory regimes in Canada or abroad are not adequately fit to execute such actions, despite receiving suggestions from international standards-setting bodies regarding the regulation of fiat-referenced crypto assets.

It briefly outlines current frameworks and interim measures, concluding that a timely and comprehensive regulatory approach in Canada will ensure that fiat-referenced crypto assets can deliver potential benefits while posing unnecessary risks.

It was in February earlier this year that Bill C-249, “Encouraging the Growth of the Cryptoasset Sector Act” was tabled in the Canadian House of Commons. Though the local crypto community largely supported it, the bill proved to be politically polarizing and was, in effect, buried soon enough.