Bank of Canada emphasizes need for stablecoin regulation as legislation is tabled
Staffers at the Bank of Canada released an analytic note on fiat-referenced crypto assets, otherwise known as stablecoins, Dec. 19. In addition to a review of mechanisms for creating and distributing stablecoins and a list of the potential risks and benefits they involve, the note expressed the authors’ support for further regulation of the crypto asset.
The global market for fiat-referenced crypto assets increased 30-fold between the beginning of 2020 and mid-2022, reaching $161 billion in U.S. dollars. They are mainly used on crypto-trading platforms, the note states, but they have the potential for a wide variety of other uses, especially in combination with smart contracts.
“These cryptoassets could bring efficiencies and greater competition to payment services, especially in a more digitalized economy. However, without safeguards, they could pose significant risks to the stability of the financial system,” the authors wrote.
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The note focuses on concentration among the risks identified. Concentration risk applies to stablecoins themselves as well as holders of stablecoin:
Such concentration means that impacts on those coins and holders could have outsized impact on the economy as a whole.
Related: Canada bans crypto leverage and margin trading after FTX collapse
Despite guidance from international standards-setting bodies regarding the regulation of fiat-referenced cryptoassets, “most existing regulatory regimes, in Canada and
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