We could soon have a new loonie that can’t get lost in the couch cushions.
What happened: National Bank is the first Big Six lender to back a Canadian-dollar stablecoin, joining Shopify, Wealthsimple, and others in a $10 million funding round for Calgary crypto firm Tetra Digital Group.
- Tetra will use part of the funding to build a stablecoin pegged directly to loonie, which is expected to launch next year.
Catch-up: Stablecoins are essentially digital tokens tied to the value of a real currency or commodity. Advocates say they offer faster, cheaper, and safer payment options than traditional banking services without the volatility of unbacked cryptocurrencies like bitcoin.
- Critics have warned that there is still a risk of the coins collapsing, but new legislation in the U.S. has helped move stablecoins into the mainstream. Firms like Walmart and Amazon are even looking to build their own.
Why it matters: In the last 12 months, stablecoin transaction volume eclipsed US$40 trillion. Given that 99% of stablecoins are currently tied to the U.S. dollar, some experts argue that Canada’s economy could suffer if it's too slow to adopt its own native digital coin.
- A loonie-backed stablecoin, in theory, ensures that digital money circulating in Canada still reflects the Canadian economy. Without one, businesses and consumers could end up turning to U.S. stablecoins for digital transactions.
Big picture: If even 5% of Canada’s $2.7 trillion money supply moved into U.S. stablecoins, over $135 billion in deposits could leave Canadian banks. That would significantly weaken the funding base for everything from mortgages to small business loans.—LA