Regulatory Delays, Dollar-Backed Stablecoins, and Affordability for Canadians
A new report from MMI and Canada 2020
Highlights
In a recent Abacus poll, Canadians identified the top three issues facing the country as the rising cost of living (61% identifying it as a Top 3 issue), the economy (39%), and Canadian sovereignty (38%).
Dollar-backed stablecoins can act as the backbone for frictionless payment systems without the need for costly intermediaries, enhancing affordability, saving money for both consumers making payments and the small businesses accepting those payments.
Canada is the only G7 country without a well-defined regulatory system, either in active or draft form, for stablecoins. The US, Japan, and the EU (France, Italy, Germany) already have systems in place, while the UK published draft legislation in April 2025.
Canada needs to recognize, like the EU has, the dangers of giving the US a monopoly on stablecoins. “Stablecoins are reshaping global finance – with the US dollar at the helm. Without a strategic response, European monetary sovereignty and financial stability could erode. However, in this disruption there is also an opportunity for the euro to emerge stronger.” Jürgen Schaaf, European Central Bank.
Canadian governments must reform regulatory systems to allow Canadian-dollar-backed stablecoins to be treated as payment instruments, rather than as financial securities, and systems must be in place to have stablecoins seamlessly integrate with existing financial networks. Clear rules and transparent systems must be created to give confidence to investors, and governments must be willing to work with homegrown innovators to create services that can be used both domestically and abroad.
Canada must, as soon as possible, create a clear regulatory framework for dollar-backed stablecoins, guided by seven principles.
When a project comes together
The Missing Middle Initiative’s (MMI) mandate is to improve the quality of life for young, middle-class Canadians through increasing their options and making life more affordable:
Missing Middle Initiative’s North Star: A Canada where every middle-class individual or family, in every city, has a high-quality of life and access to both market-rate rental and market-rate ownership housing options that are affordable, adequate, suitable, resilient, and climate-friendly.
In the summer of 2025, Canada 2020 and Coinbase approached MMI with the idea of examining Canada’s falling behind our G7 partners in dollar-backed stablecoins, how a well-regulated dollar-backed stablecoin system could make life more affordable for middle-class Canadians, and providing recommendations on how Canada could design such a system. MMI helped the two organizations understand who we are, walked them through our past reports, and detailed how we maintain editorial independence (a topic of a recent podcast episode). The three organizations decided to proceed with the project; MMI was particularly interested in how increased competition in the payments space could lead to enhanced affordability for young, middle-class Canadians, while also recognizing the need to ensure financial safety and stability.
The full report, a joint Canada 2020-MMI production, can be found at the bottom of this article, along with our seven recommendations.
Stablecoins and the Canadian economy
Canada has committed to removing barriers to internal trade, to unleashing the country’s economic potential, and to getting infrastructure built faster. This should include creating regulatory systems to allow digital infrastructure and innovations to flourish, such as dollar-backed stablecoins.
Dollar-backed stablecoins are a type of cryptocurrency that is pegged to a specific currency, such as the Canadian or U.S. dollar. For every unit of the stablecoin, an equivalent amount of dollars or equivalent assets, such as treasury bills, is held in reserve by the issuer.
Dollar-backed stablecoins have several attractive features, including their stability, store of value, liquidity, and ability to be transferred globally, making them a compelling option for payments. As of March 2025, there were 240 billion USD (320 billion CAD) worth of stablecoins in circulation, with Citigroup estimating this will grow to 1.6 trillion USD (2.2 trillion CAD) by 2030.
In a recent Abacus poll, Canadians identified the top three issues facing the country as the rising cost of living, the economy, and Canadian sovereignty. A well-regulated, made-in-Canada stablecoin regulatory system can assist with all three objectives, as it lowers transaction costs for both consumers and small businesses, allows for homegrown innovations and innovators to flourish, and creates new demand for Canadian bonds, thereby lowering government borrowing rates.
Despite the rapid growth in the global stablecoin market and the benefits to Canadians, Canada has fallen behind our G7 counterparts in developing stablecoin regulations. This failure to act harms both the Canadian economy and Canadian sovereignty.
How dollar-backed stablecoins function as digital dollars
Dollar-based stablecoins, such as Tether (USDT) and USDC, are a form of cryptocurrency that, unlike traditional cryptocurrencies, do not fluctuate in value. Each dollar of stablecoin is backed by a dollar in savings, in the form of either cash, demand deposits, or highly safe and liquid assets, such as government-issued Treasury bills.
Since dollar-backed stablecoins have full 1-to-1 backing with dollar-denominated assets, users can seamlessly exchange their stablecoins for dollars, and vice versa, at par.
Because these assets are pegged to the dollar, their primary use case is as a form of payment, rather than an investment vehicle, such as a stock or bond. Although not money in the traditional sense, they fulfill all three functions of money: they act as a medium of exchange, a store of value, and a unit of account, as they are tied to the dollar.
Stablecoins, however, offer several advantages over traditional payment systems, most notably low transaction costs and near-instantaneous settlement. Dollar-backed stablecoins offer the stability of currency with the programmability of blockchain.
How payments reform can enhance affordability for young, middle-class Canadians
Because stablecoins can act as the backbone for frictionless payment systems without the need for costly intermediaries, they can save money for both consumers making payments and the small businesses accepting those payments.
A Bank of Canada study found that, in 2018, transaction costs on credit and debit purchases at merchant point-of-sale systems cost Canadians $13.2 billion, of which $3.4 billion was returned through various rewards, costing a family of four $1,000 per year. A 2024 estimate by the U.S. National Retail Federation found that these fees cost the average American family $ 1,200 per year.
Without a Canadian dollar-denominated stablecoin, Canadians must incur foreign exchange fees to purchase US dollar-denominated stablecoins.
Stablecoins are particularly valuable for Canadians needing to remit funds abroad. In 2018, residents of Canada remitted over $20 billion to friends and family in other countries, with many losing 6-12% of the value of those remittances to fees. Globally, remitters lose an estimated $59 billion of their nearly $1 trillion a year in remittances, a transfer of wealth from those who can afford it the least. Stablecoins can cut these fees by two-thirds or more, saving Canadian remitters hundreds of millions of dollars annually.
Stablecoins can be created or custodied that pay interest or provide other rewards, allowing Canadians easy access to their money while earning higher returns than on debit accounts, and with lower minimum balances than savings accounts.
Two-thirds of Canadians who do not own a home cite the inability to save enough for a down payment as a primary barrier. Stablecoins, through their ability to offer higher rates of interest and lower transaction costs, can be a vital tool for those saving for a home.
Closing the gap: How Canada can catch up to the rest of the G7
Canada benefits from having the Canadian dollar as both a global top-six reserve currency and a top-six most traded currency. It creates markets for our debt and opportunities for our exporters. But Canada cannot maintain this position if our currency is less functional than that of our competitors.
Canada is the only G7 country without a well-defined regulatory system, either in active or draft form, for stablecoins. The US, Japan, and the EU (France, Italy, Germany) already have systems in place, while the UK published draft legislation in April 2025.
In Canada, stablecoins can simultaneously fall under provincial securities regulations, federal payments rules, and OSFI macroprudential rules, though it is often unclear which regulations apply to which technology and for which use case. This regulatory grey area has created a chill in the industry, providing consumers and businesses with inadequate protection, and sends a signal to entrepreneurs and investors to set up shop elsewhere.
Despite these challenges, some innovators are pushing forward. Toronto-based Stablecorp has been working on creating a made-in-Canada stablecoin since 2020, but has been hampered by regulatory issues, noting “our challenge is that we have 13 different provincial securities regulators, each approaching crypto through the lens of securities law... “that’s led to a square peg, round hole problem.” Canada’s Tetra Group has announced plans to issue a CAD-backed stablecoin in early 2026, subject to obtaining the necessary regulatory approvals.
Canada needs to develop a regulatory system that provides a clear framework allowing stablecoins to be regulated as payment systems, rather than as securities, such as stocks or bonds. The system should be designed as a made-in-Canada solution that, where possible, has harmonized standards with our global trading partners.
There is an appetite for innovation in Canada. What we lack is the regulatory environment to make it happen.
Recommendations
Canada must, as soon as possible, create a clear regulatory framework for dollar-backed stablecoins, guided by seven principles:
Urgency: Canada has fallen behind our G7 peers in stablecoin regulation. Failure to act risks Canada being excluded from the benefits and having the rules of the game being written elsewhere.
Leadership: The federal government’s stablecoin strategy must have a single point person, such as the Minister of Artificial Intelligence and Digital Innovation, to lead the process and work with relevant agencies and provinces to design and implement reforms.
Clarity: Overlapping agencies and jurisdictions create regulatory uncertainty and occasionally conflicting requirements. There should be a clear set of rules for stablecoins, and the federal government must establish a single window to shepherd innovators through the applicable regulations.
Safety: Stablecoins should be backed with high-quality, low-risk, and liquid assets to ensure stability and full-value redemption.
Competition: The assets backing stablecoins generate interest income. Stablecoin issuers should have the option of flowing some of that income to coin holders and users, in the same way that credit cards offer cash back and other rewards to their users.
Innovation: Rules governing stablecoins should not be overly prescriptive and allow for the development of new business models and new technologies, so long as those models and technologies meet minimum standards.
Transparency: Rules that govern stablecoins should have clear, fair, and proportionate disclosure requirements to ensure consumer protection without imposing excessive burdens.
Disclosure statement
The author (Mike Moffatt) does not hold any financial position in stablecoins, crypto, or related companies. As of the time of writing, the author is a homeowner who owns shares in four ETFs: ZDV, YEF, XIU, and VCN.
This project was developed with financial support from Coinbase.
