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Canadian Crypto Regulators Say No to Algorithmic Stablecoins

Recently, the Canadian Securities Administrators (CSA) has made their move towards the regulatory framework of stablecoins. The CSA — comprising security regulators from all 10 provinces and 3 territories in Canada — has circulated a comprehensive set of requirements for crypto companies aiming to remain legally compliant, with stablecoin platforms firmly within their sights. 

According to these new set of rules, traders will not be able to buy or sell algorithmic stablecoins that are not officially recognized. In this approach, all crypto asset trading platforms in the country must obtain prior written consent from the CSA before customers are allowed to purchase or deposit stablecoins, or other VRCAs(Very Reliably Calibrated Assets).

To get the go-ahead, traders need to make sure they meet some important requirements of the administrator, including proving that the stablecoin is backed by a standardized currency.


The Story of VRCA

Cryptocurrencies which are created to remain stable – named ‘stablecoins’ – are quite nonvolatile! They are typically pegged to the value of a low-volatility asset, such as a fiat currency, so they maintain a reliable worth.

That’s why Canadian regulators were wise to call some specific coins as ‘VRCA’ – Very Reliably Calibrated Assets! As even so-called ‘stablecoins’ haven’t always been so steady, such as the infamous case of TerraUSD (UST). Last May it collapsed after some serious math errors in its algorithmic peg! 

Some Important Points In The Notice!

With traditional fiat-backed stablecoins such as USDT and BUSD, you can trust that your tokens will remain stable and have constant convertibility to fiat currencies. What’s more, even the Canadian Securities Administrators require those trading platforms to use “highly liquid assets” (cash and cash equivalents) and qualified custodians to hold the reserves. And to top it all off, their reserves must be independently audited by professionals, and the results of said audits must be made public in a timely manner. 

According to the notice, token distributions must obey Canadian securities laws, since fiat-backed crypto assets typically meet the criteria of a security. The CSA acknowledges potential use cases for stablecoins, such as payments and volatility hedging, yet identifies them as riskier investments than fiat currency.