A digital dollar? Why this Alberta company wants to launch a Canadian stablecoin

A Calgary-based finance company has raised $10 million to create a digital version of the Canadian dollar, with backing from Shopify, Wealthsimple and National Bank — pushing Canada into the global race to digitize money.

Tetra Digital, a financial services group, is planning to launch a Canadian stablecoin next year. Stablecoins are a type of cryptocurrency linked to a country's national currency, such as the Canadian dollar, or to a commodity like gold.

The idea is that these tokens are a one-to-one digital replica of their real-world assets. For example, a Canadian dollar-backed stablecoin could be exchanged for an actual Canadian dollar at any time or place in the world without added fees.

"There's a lot of U.S. stablecoins right now," said Didier Lavallee, CEO of Tetra Digital, who told CBC News he believes his company will meet what he believes is a looming demand for these digital assets.

"If you're a Canadian business, you want to be able to transact on a Canadian-denominated vehicle or product or token," he said.

Eventually, stablecoin advocates like Lavallee want Canadians to be able to safely use stablecoins to pay for online purchases, and to send money to family or friends around the world without delays or extra costs.

Those who champion stablecoins say they come with the ease of trading crypto without any of the volatility (hence their name). The exchanges are made on a blockchain, which is a system that records and verifies transactions between computers, rather than through traditional banking systems.

While that makes the exchanges faster, it's a concern for experts who worry that stablecoins, like other cryptocurrencies, lack the security infrastructure that banks have in place to detect and stop illegal financial transactions.

Canadian advocates, concerned that the country is falling behind on cryptocurrencies, have been urgently pushing the federal government to regulate the tokens so that companies have a framework to issue their own loonie-backed stablecoins.

That's what the U.S. government did this summer when it passed the GENIUS Act, opening the door for major American companies like Walmart to issue USD-backed coins.

The industry largely saw the Trump administration's move as legitimizing this type of currency, while other countries viewed it as a catalyst to regulate stablecoins themselves, lest they be left behind. Experts say that China is especially concerned that the U.S. will dominate the digital currency space — and reassert the dominance of a weakened U.S. dollar — should USD-denominated stablecoins flourish.

Canadian champions of the currency have shared similar concerns, calling it a matter of economic "sovereignty" for Canada to have its own stablecoin.

"Whether we like it or not, when we are transacting a U.S.-denominated stablecoin, we're essentially supporting [the] U.S. Treasury in U.S. dollars," said Lavallee, who explained his perspective is that stablecoin purchases will fund Canadian dollar purchases that, from a broad perspective, will "help support our Canadian economy versus essentially outsourcing transactional dollars."

Stablecoins are similar to but distinct from central bank-issued digital currencies (CDBCs). The Bank of Canada dropped plans for its own digital loonie last year, saying that it would instead focus on researching the global digital asset sector.

Some authorities in Canada currently consider stablecoins to be securities, a classification that the crypto industry has largely objected to — preferring the currencies to be regulated as e-tokens, similar to the approach taken by the U.S. and the EU.

Being regulated as securities could, in many jurisdictions, mean digital assets are governed by the same laws as stocks or similar investments, whereas legislation such as a recent U.S. law instead requires companies issuing stablecoins to have enough "traditional" currency to back the digital currency up.

Coinbase, a cryptocurrency trading platform that invests in Tetra, is among the companies urging Ottawa to get the ball rolling on an updated regulatory framework for stablecoins.

"A Canadian-denominated stablecoin would help with payments, it would help with cross-border transactions, and it would help with all the foreign exchange that we have here in Canada," said Lucas Matheson, CEO of Coinbase Canada.

Up to this point, Canadian companies that want to issue stablecoins haven't had the regulatory clarity they need to move forward on those projects, Matheson said.

Because stablecoins need to be backed by material assets, a basic framework would include clear rules around reserves — like what percentage of the coins can be backed by cash assets versus treasuries.

"For a large G7 country, you want to make sure that you can project your currency, and having a stablecoin in the future is going to be an important part of that," said Tom Duff Gordon, vice-president of international policy at Coinbase.

"I think there are foreign investors that want to hold Canadian dollars, and doing so in [Canadian dollar-backed], regulated stablecoins will be an easier [way] for them to do that."

The safety and stability of stablecoins, regardless of their denominated currency, is still a big question mark for at least one Canadian cyber-law expert.

"Prove to me you actually have the assets to back this, and that they are liquid assets and that they're stable assets," said Brent Arnold, founder of Toronto law firm Capstan Legal and chair of the Canadian Internet Society.

"If those conditions aren't in place and no one's making sure they're in place, you could still end up in a situation where everyone realizes the token's worth nothing, there's a run on the bank and you have a collapse."

Arnold, who practises cybersecurity law, says there's still a lack of clarity on how the law can and will deal with cryptocurrencies or stablecoins.

"There's always friction when you invest in something that's treated in one way by one country and in another way by other countries," he said.

However, the presence of what Arnold called "very credible players" including Wealthsimple, National Bank and Shopify could indicate companies are responding to consumer demand.

Shopify did not respond to a CBC News request for comment on this story. In a press release, Wealthsimple's chief legal officer called the launch of Tetra's Canadian stablecoin a "defining moment for Canada's digital economy," while National Bank's venture capital division promised "the safeguards needed to support Canadians and businesses in the future."

But Arnold says he still isn't sure anyone needs a Canadian stablecoin, saying he is "skeptical" as to just how much demand there is in Canada for this product.

"I'm still yet to see a really good, compelling explanation for why this is necessary or anything other than a solution in search of a problem."