The research conducted by the Bank of Canada indicates regulation is critical to realize the benefits inherent in the fiat-references cryptos. The analytic note released on December 19 laments the failure of the Canadian parliament to enact the legislation buried at the second reading stage.
Regulatory Safeguards Necessary to Reap Benefits
The note challenges the need for Canada to assess the creation and distribution mechanism deployed to stablecoins. In support of regulating stablecoins, the analytic study illustrates the need to review potential risks and inherent benefits Canada can leverage.
The researchers observed the stablecoins segment popularity as their global market grew 30-fold from 2020 to realize $161 billion by mid-2022. The report highlights that stablecoins utilization is predominantly in crypto-trading platforms. Nonetheless, the note holds that the fiat-references cryptos have the potential to accommodate other sources when integrated with smart contracts.
The analytic review portrays crypto assets as yielding operational efficiencies and fierce competition to conventional payments, mainly when utilized within the digitized economy space. Nevertheless, the researchers noted that stablecoins could trigger contagious risks to the financial system if Canada fails to implement safeguards towards their inherent risks.
Stablecoins Hindered by Concentration Risks
The Bank of Canada note decries the concentration in stablecoin ownership and dominance as a significant risk. The researchers noted that the top-ranked fiat-referenced cryptos command 90% of the global stablecoin segment. They further observed that a meager 1% of the crypto investors own at least 90% of the stablecoins supply. The researchers warned that the existence of such concentration could adversely affect the economy if such holders and dominant coins are triggered.
Crypto Regulatory Journey in Canada
The note laments that the Canadian regulatory regime is unfit for purpose despite the guidance offered by the international standards-setting entities. The note challenged Canadian lawmakers to develop a comprehensive regulatory framework from the interim measures. Furthermore, it revealed that timely and comprehensive regulatory action would reinforce Canada’s position to reap potential benefits in the fiat-referenced crypto assets while safeguarding the economy from the inherent risks.
The note delved into the Encouraging the Growth of the Cryptoasset Sector Act regulation dubbed Bill C-249. The researchers regretted that the bill received widespread support from the crypto community since its introduction in February. However, the emergence of political divisions in the Canadian House of Commons in February cost the bill at the second reading.
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