'Stablecoins are designed to hold their value one-to-one with the Canadian dollar': Garetson

Key Concepts

• Stablecoins: Digital assets designed to maintain a stable value, typically pegged 1:1 to a fiat currency like the Canadian dollar.
• Stablecoin Act (Canada): Proposed legislation providing a regulatory framework for stablecoin issuers in Canada, granting oversight to the Bank of Canada.
• Genius Act (US): Similar legislation passed in the US, expected to come into force in 2027.
• MiCA (EU): Markets in Crypto-Assets regulation in the European Union, a parallel legislative effort.
• High-Quality Liquid Assets (HQLA): Assets readily convertible into cash with minimal loss of value, required as reserves for stablecoins.
• B2B & B2C Payments: Business-to-Business and Business-to-Consumer payment systems, potential use cases for stablecoins.
• Remittance Transactions: Sending money internationally, another potential application for stablecoins.
• Blockchain Technology: The underlying technology for stablecoins, enabling decentralized and transparent transactions.

Canada’s Proposed Stablecoin Act: Implications for 2026 and Beyond

Introduction

The proposed Canadian Stablecoin Act represents a significant development in digital asset policy since 2019, aiming to provide clarity and regulation for the burgeoning stablecoin market. This discussion, featuring Adam Garrettson, Partner at Galling WLG and leader of their Blockchain and Digital Assets group, explores the implications of this act for investors and the broader financial landscape heading into 2026.

The Shift in Stablecoin Legislation (2025-2026)

Prior to 2025, regulation of stablecoins in Canada primarily came from Canadian securities regulators. However, the release of the draft Stablecoin Act in November marked the first substantial move by the federal government to integrate Canada more fully into global digital markets. This act establishes a framework for stablecoin issuers, defining requirements for operation and oversight. Garrettson notes the timing is crucial, as the legislation is designed to position Canada alongside other global jurisdictions actively regulating this asset class.

Core Principles of the Stablecoin Act

The central tenet of the Act is ensuring the stability of stablecoins by requiring them to be backed by real-world assets. As Bank of Canada Governor Tiff Macklem has indicated, the legislation mandates that stablecoins be pegged to the Canadian dollar and supported by reserves held in cash or other High-Quality Liquid Assets (HQLA). These reserves must be segregated and held by custodians, such as financial institutions. The Bank of Canada will have regulatory oversight of stablecoin issuers.

• HQLA Definition: These are assets that can be easily and quickly converted into cash with minimal loss of value, ensuring the stablecoin can maintain its peg to the Canadian dollar.

Benefits of Stablecoins Beyond Traditional Currency

While seemingly redundant to simply hold Canadian dollars, stablecoins offer unique advantages in the digital realm. Garrettson highlights two primary use cases:

1. Trading Pairs: Stablecoins facilitate trading with other digital assets like Bitcoin, providing a stable base for exchange. As more assets migrate to blockchain technology, the need for stable trading pairs in Canadian dollars will increase.
2. Payments & Remittances: Stablecoins enable faster, more efficient payments, including Business-to-Business (B2B), Business-to-Consumer (B2C), and international remittance transactions. Traditional payment rails are comparatively slow and less accessible. The technology allows for near-instantaneous settlement, 24/7 availability, and global interoperability.

Global Regulatory Landscape: US, EU, and Hong Kong

Canada’s move aligns with a broader global trend in stablecoin regulation. The US Genius Act, passed earlier in 2024 and expected to take effect in 2027, serves as a parallel example. Similar legislation has also emerged in the European Union (MiCA – Markets in Crypto-Assets), Hong Kong, and other jurisdictions. This widespread regulatory activity indicates a global recognition of the need to govern this emerging asset class. Currently, jurisdictions are in a “ramp-up” phase, preparing financial institutions and businesses for compliance with these new regulations.

The Allure of a Canadian Dollar-Pegged Stablecoin

A Canadian dollar-denominated stablecoin offers strategic advantages in the evolving global money markets. As more financial activity shifts to blockchain, it’s crucial for the Canadian dollar to maintain a presence. Garrettson emphasizes that a “rapid follower” advantage – being among the first to market with a Canadian dollar stablecoin – can benefit Canadian economic sovereignty. The established Canadian financial system can provide the trust and infrastructure necessary for a successful stablecoin launch.

Investor Guidance for 2026

Garrettson advises investors to be proactive in preparing for the implementation of the Stablecoin Act. Key recommendations include:

• Seek Legal Counsel: Consult with legal experts to understand the regulatory implications.
• Governance & Regulatory Frameworks: Develop robust governance and regulatory frameworks for handling stablecoins.
• Technology & Operations: Assess and adapt technology and operational infrastructure.
• Integration Strategy: Plan for the integration of stablecoins into existing systems and processes.
• Compliance Obligations: Understand and prepare for legal and regulatory compliance requirements.

Notable Quote

“My recommendation is to be proactive. Talk to counsel. Think about your governance and regulatory frameworks that you’re implementing… Getting out in front of it now, understanding the frameworks, the risk parameters, the integration strategy in your legal and regulatory compliance obligations will go a long way to be prepared.” – Adam Garrettson

Conclusion

The Canadian Stablecoin Act signifies a pivotal moment for digital asset regulation in Canada. By establishing a clear framework for stablecoin issuers and aligning with global trends, the Act aims to foster innovation while mitigating risks. Investors and businesses should proactively prepare for the evolving landscape, focusing on legal compliance, robust governance, and strategic integration of stablecoins into their operations. The potential benefits of a Canadian dollar-pegged stablecoin – particularly in facilitating digital payments and maintaining economic sovereignty – position Canada for a significant role in the future of finance.