Canada’s lawmakers are weighing in on an issue that has been top of mind for banks as stablecoins gain traction: yield.
The country’s regulators have proposed draft stablecoin rules that would prohibit issuers from paying interest to token holders, either directly or through third parties. Transaction-based rewards, however, would still be allowed.
The proposed framework would also require non-bank issuers to hold reserves equal to the value of their outstanding stablecoins at Canadian financial institutions. Issuers would have to allow customers to redeem tokens for conventional currency within three business days, with fees capped at 1%.
“This can be viewed as Canada giving stablecoins a path into payments but limiting their ability to compete with bank savings accounts,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “For issuers, the challenge is winning users through cheaper and faster payments rather than yields.”
“Transaction-based rewards would still be allowed, so there is room for adoption from that angle without paying people to simply hold a stablecoin,” he said. “I would imagine financial institutions would likely pursue that angle next to compete.”
Disrupting the Status Quo
As stablecoins have grown in popularity, financial institutions have voiced concerns about their potential to disrupt the traditional banking system. Banks, in particular, have warned that yield-bearing stablecoins could draw deposits away from traditional financial institutions, potentially limiting their capacity to lend.
In the U.S., the Office of the Comptroller of the Currency (OCC) recently issued guidelines for implementing the GENIUS Act, which governs stablecoins. The law prohibits issuers from paying interest directly to holders, but the OCC stopped short of barring crypto exchanges and other third-party platforms from offering yield on stablecoin balances.
Competing On Par
The difference in approaches highlights the ongoing regulatory uncertainty surrounding stablecoins worldwide. While some jurisdictions have yet to establish comprehensive rules, others, including China and Egypt, have banned them outright.
Despite these divergent approaches, stablecoins are becoming an increasingly significant part of the global payments landscape. The digital assets industry has generally welcomed clearer regulatory frameworks, which could provide greater certainty for companies seeking to compete with traditional banks.
