Tuesday, March 5, 2024

Canadian regulators say no to algorithmic stablecoins

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The Canadian Securities Administrators (CSA), which consists of securities regulators from Canada’s 10 provinces and 3 territories, has released a long list of new requirements for cryptocurrency companies that want to be legally compliant and on stablecoin platforms. Cross chairs.

Cryptocurrency trading platforms within the country will now be prohibited from allowing customers to buy or deposit stablecoins or other “value referenced crypto assets” (VRCAs) without the prior written consent of the CSA. Getting approval means meeting a number of due diligence requirements for administrators, including making sure the stablecoin is backed by fiat.

“For added certainty, we would not expect to grant approval in respect of a VRCA that is not fully supported by an appropriate balance, but rather has its value through a methodology,” the regulator wrote in a letter. I declare Published on Wednesday.

Fixed Currencies Cryptocurrencies are designed to hold a relatively “fixed” value, usually representing a volatile asset such as fiat currency.

Canadian regulators prefer to use the term VRCA, however, some so-called “stablecoins” have not been stable in the past. Last May, TerraUSD (UST), previously the third largest stablecoin by market capitalization, completely lost its peg to the dollar as flaws surrounding its algorithmic peg sent it into an unrecoverable death spiral.

Traditional fiat stablecoins such as USDT, USDC, and BUSD use fiat-denominated reserves to provide stable conversion and maintain a stable price for their tokens.

The CSA requires trading platforms to buy or sell such tokens only if their holdings are “highly liquid assets” (cash and cash equivalents) and with an eligible custodian. They must undergo monthly review by independent auditors and must be made public “in due course”.

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Distribution of these tokens must comply with Canadian securities law because, according to the advisory, “fiat-backed cryptocurrencies generally meet the definition of a security”.

Even if consensus is somehow reached, the definition is less flexible for algorithmic stablecoins.

“Like fiat-backed crypto assets, we will generally treat VRCAs that are pegged to or backed by assets other than fiat currency as a security and/or derivative,” the announcement said. This includes assets backed by other cryptocurrencies such as Covered Bitcoin (WBTC).

While the CSA recognizes the use of stablecoins as payment and volatility hedging, it considers them riskier than fiat currency. “Any endorsement given by the VRCA should not be construed as a representation that the VRCA has been distributed in accordance with Canadian securities law,” he added.

In the US, the Securities and Exchange Commission issued a Wells advisory on Baxos earlier this month, saying its stablecoin BUSD is an unregistered security, a status. He argued By many in the industry.

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Bruno Lawrence
Bruno Lawrence
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