The Canadian government's new Stablecoin Act addresses some of the industry's demands.
The Canadian regional manager of cryptocurrency exchange Coinbase wants federal Artificial Intelligence (AI) and Digital Innovation Minister Evan Solomon to add blockchain technology to his portfolio.
The federal government has already quickly passed legislation regulating stablecoins, a digital asset, in response to industry demands. However, Lucas Matheson, CEO of Coinbase Canada, believes Solomon's portfolio should include the technologies behind cryptocurrencies. AI and blockchain are linked not only by their potential to transform existing industries, but also by Canada's ability to assert its digital sovereignty, advocates like Matheson say.
“We asked Evan Solomon to expand his scope and mandate beyond artificial intelligence,” Matheson told BetaKit. “If you think about AI as a decision-making tool, blockchain will create a layer of trust under the AI to move valuable data onto the Internet. We do not have a federal leader mandated to coordinate and promote blockchain technology.”
Solomon is responsible for artificial intelligence, digital innovation and economic development in Southern Ontario. In an email to BetaKit, Sofia Uslys, a spokeswoman for Solomon's office, acknowledged that he has collaborated with Coinbase and other companies in the digital economy.
“In these conversations, they shared their views on blockchain and stablecoins as part of their broader advocacy efforts,” Uslys wrote. “We regularly hear from innovators across sectors, but that doesn’t mean these issues fall within our remit.”
Coinbase is the leading cryptocurrency exchange in the United States with over $500 billion in assets under management (CAD $705 billion). It also has a significant presence in Canada and invests in domestic startups. Records show the U.S.-based Coinbase group lobbied for Solomon's direct proxy support to Innovation, Science and Economic Development Canada, as well as Treasury Canada and the Bank of Canada to promote blockchain technology and stablecoins.
On Sunday, Matheson took to the Gray Cup field with Prime Minister Mark Carney for the coin toss. “We had a great conversation on the field, but we didn’t talk business,” Matheson told BetaKit.
AI, blockchain and digital sovereignty
The stablecoin movement and discussions around the role blockchain should play in finance and government come as Canada increasingly focuses on how it can assert its digital sovereignty.
Attorneys like John Ruffolo, founder of CCI and managing partner of Maverix Private Equity, argued that Canada will remain at the mercy of a US-dominated payment system without sovereign payment systems for stablecoins. Ninety-nine percent of stablecoins are already pegged to the US dollar in the global market, according to JPMorgan.
Stablecoins are a form of digital currency that is pegged to traditional fiat currency such as the Canadian dollar. In response to industry demands and similar legislation in the United States, the federal government has introduced a draft regulatory framework for stablecoin issuers in Canada.
In an interview with BetaKit, Ruffolo said allowing Canadian money into the U.S.-controlled stablecoin market poses a threat to economic sovereignty. The same can be said for the potential for consumer deposits to move en masse into stablecoin wallets and out of Canadian banks.
“Canada needs to build its own sovereign rails so that we don't lose control of stablecoins from a monetary policy perspective,” Ruffolo said.
Although Matheson argued that technology already exists in Canada to move forward with stablecoins, he also presented the technology as an opportunity for sovereignty.
“This is also a great opportunity for our federal government to position Canada as a leader in the digital economy and increase global demand for our dollar,” Matheson told BetaKit. He argued that Canadian-denominated stablecoins would increase demand for Canadian government debt, such as short-term bonds, thereby lowering the government's borrowing costs.
Rapid Changes to the Stablecoin Law
Both Matheson and Ruffolo said they were pleased with the federal government's rapid progress in creating a stablecoin framework through federal budget.
The proposed Stablecoin Act, released earlier this week, would require issuers to maintain and manage adequate asset reserves at a ratio of 1:1 or greater, establish redemption policies, implement risk management mechanisms, and protect sensitive consumer data and national security measures. The Bank of Canada was appointed to oversee the final list of approved stablecoin issuers and committed $10 million.
The law regulates only private companies issuing stablecoins and excludes banks. The legislation would not necessarily establish all stablecoins as payment instruments, as industry groups have demanded, but would only regulate the issuance of stablecoins. How digital assets are used will determine whether they are considered payment instruments or securities. More detailed information will be available from provincial securities regulators.
However, Matheson argued that one thing is missing: Feds should allow consumers to earn interest on stablecoins so that the value of their deposits is returned to them, “rather than bank shareholders.” The US Genius Act also prohibits these profitable stablecoins.
In a statement to BetaKit, a Treasury spokesperson said the interest ban “is consistent with similar restrictions under the US GENIUS Act and the EU MiCA regime. This system was designed to regulate fiat-backed stablecoins that function as cash rather than as an investment vehicle.”
Image courtesy of Coinbase.
