Canada Stablecoin Regulation: NDAX Exec Calls Classification a Crucial Mistake

Canada’s approach to digital asset regulation has been a hot topic, particularly its classification of stablecoins. While regulators aimed to protect investors following market turmoil, some industry leaders argue the strategy missed the mark. This debate is crucial for anyone involved in the Canadian crypto market or watching global regulatory trends.

Canada Stablecoin Regulation: What Happened?

In December 2022, just a month after the significant collapse of the FTX crypto exchange, the Canadian Securities Administrators (CSA) made a pivotal decision. They classified stablecoins as “securities and/or derivatives.” This move aimed to bring these value-referenced crypto assets under existing regulatory frameworks, citing recent market events as the catalyst.

This classification was further detailed in subsequent guidance in February and October 2023. While intended to provide clarity and investor protection, this specific approach to Canada stablecoin regulation has faced criticism from within the industry.

Why NDAX Thinks Canada “Got it Wrong”

Tanim Rasul, the chief operating officer at Canadian crypto exchange NDAX, has been vocal about his disagreement with Canada’s regulatory stance on stablecoins. Speaking at the Blockchain Futurist Conference in Toronto on May 13, Rasul stated unequivocally that Canada “got it wrong” by categorizing stablecoins as securities in 2022.

Rasul emphasized that Canada needs to recognize the global trend where other regulatory regimes are viewing Stablecoins primarily as payment instruments, not securities. He suggested Canadian regulators look to Europe’s comprehensive crypto framework as a potential model.

The MiCA Model: Stablecoins as Payment Instruments

Rasul specifically pointed to Europe’s Markets in Crypto-Assets (MiCA) regulation as an example Canada should consider. “Look at MiCA, look at the way they’re approaching stablecoins. It’s a payment instrument. It should be regulated as such,” he remarked. The core difference lies in the regulatory lens: securities regulation focuses on investment protection and market integrity, while payment instrument regulation focuses on financial stability, consumer protection in transactions, and anti-money laundering measures.

The argument is that stablecoins, especially those pegged to fiat currencies, function more like digital cash for payments and transfers than traditional investment securities. Regulating them primarily as securities might impose burdens or requirements that are ill-suited to their primary use case.

How Crypto Regulation Impacts the Canadian Market

Canada’s relatively stringent approach to Crypto regulation has had tangible effects on the local market. Several major global crypto companies, including Binance, Bybit, OKX, and Paxos, have scaled back or ceased operations in Canada since the regulations were clarified. Crypto exchange Gemini also announced plans to exit the Canadian market by September 2024.

However, despite these company departures, the Canadian digital asset market shows resilience. According to Grand View Research, the local crypto industry generated $224 million in revenue in 2024, an increase from previous years. The market is projected to grow at a compound annual growth rate (CAGR) of 18.6% until 2030, potentially reaching $617.5 million in annual revenue.

Looking Ahead: A Call for Regulatory Alignment

The comments from the NDAX executive highlight a key tension in global crypto regulation: how best to classify and oversee stablecoins. While Canada prioritized a securities-based approach, other jurisdictions, like the European Union with MiCA, have adopted a framework that recognizes stablecoins’ potential as payment instruments.

The call for Canada to re-evaluate its stance and align with international perspectives like MiCA suggests a desire for regulatory clarity and a framework that supports the innovation and utility of stablecoins, particularly for payments, while still addressing necessary risks.

Conclusion

The debate over how to regulate stablecoins in Canada continues. While regulators acted to protect the market, industry figures like NDAX’s Tanim Rasul argue the securities classification was a mistake and that viewing stablecoins as payment instruments, similar to the approach taken by MiCA, would be a more appropriate path forward. As the Canadian crypto market continues to grow, the effectiveness and impact of its current regulatory framework will remain under scrutiny.