Canada’s Proposed Stablecoin Regulations
Canada has proposed a regulation for stablecoins that allows issuers to reward payments but prohibits them from paying people for holding tokens in their wallets. This distinction is outlined in a draft regulation published on October 24, with comments open until December 23. A customer can receive a discount for paying a merchant with a Canadian-regulated stablecoin, but the same issuer cannot promise an annual return just for holding the coin in an app.
Key Features of the Proposal
The draft attempts to track who pays and what behavior earns the reward. It states that a payment linked to a transaction, but not to storage, is not considered interest or return under the Stablecoin Act. Companies designing payment programs must evaluate both aspects of a campaign, not just the label printed on an offer.
NEWS: Canada proposes stablecoin regulations that prohibit yield payments and tighten reserve requirements.
The text in the Canada Gazette is still a proposal. Section 14 states that a payment related to a transaction, but not to the storage of a stablecoin, is not considered interest or return. The next section addresses an issuer’s arrangement with another person, where the arrangement provides that person income from storage or encourages that person to pay returns to holders.
Feedback and Industry Concerns
Canadian officials have heard objections from fintech companies and banks regarding a general prohibition on rewards. The Ministry of Finance stated that it had considered industry feedback and decided to allow transaction-based rewards while maintaining the statutory prohibition on returns from balances. The initial coverage of the consultation identified usage incentives, merchant discounts, and loyalty programs among the arrangements that the Canadian Web3 Council wanted clearly permitted.
Understanding Payment Triggers
Payment triggers are a useful starting question for a customer reading an offer. Does the reward come when a merchant purchase is completed? Does it grow because more coins remain in the wallet longer? Can the user remove the balance immediately after the purchase and still retain the benefits? Answers to these questions reveal more than a promotional rate.
NEWS: The 6 largest banks in Canada are exploring tokenized Canadian dollar deposits.
Section 14(1) is brief. A payment or reward linked to a stablecoin transaction, and not linked to the storage of a stablecoin, is not interest or return. A fixed discount for a completed purchase fits more naturally into the language than a monthly percentage paid on an average wallet balance. The actual program terms matter.
Regulatory Implications
The law focuses on issuers, and Section 14(2) closes a route through intermediaries. If an issuer enters into an agreement that allows another person to receive returns from holding their stablecoin, including through income sharing, the issuer may be considered to be paying returns indirectly. The same section captures an agreement that encourages the other person to pay returns to the coin’s holder.
Companies must examine the contracts behind the offer. The draft does not provide a comprehensive list of approved card-like promotions. It gives a boundary for companies to apply. A platform could return a small percentage of each completed purchase to a customer. Another could pay a monthly bonus calculated based on the lowest balance held during the month.
Conclusion
The proposed regulations are currently in the consultation phase, and the final regulation may differ from the text now on the table. The deadline of December 23 gives companies time to clarify where the draft is clear and where an existing rewards model may lie between consumption and storage. The Stablecoin Act provides the statutory return prohibition, so comments on the regulations cannot lift that prohibition by themselves. They may influence how the transaction exception and issuer arrangements are written or clarified.
In summary, Canada has provided the industry with a proposed response that is more useful than a simple “rewards prohibited” headline. Consumption rewards can exist; balance returns paid by an issuer or channeled through its arrangements cannot. The precise boundary will be set by the final text and by how real products are financed, marketed, and paid.
