In Canada, the adoption of stablecoins must navigate a multifaceted regulatory environment. The introduction of USD1 by World Liberty Financial—a venture backed by Donald Trump and his family—adds a new dimension to the market. With its backing by U.S. Treasuries and dollar deposits, USD1 aims to challenge dominant stablecoins like Tether (USDT) and USD Coin (USDC). But can it succeed in Canada’s evolving regulatory framework, and what does it mean for Canadian investors?​

The cryptocurrency market is known for its volatility, but stablecoins have emerged to provide much-needed price stability. According to CoinGecko, the stablecoin market was valued at over $160 billion as of early 2024, with USDT and USDC leading in market capitalisation and usage. These tokens are critical in bridging the gap between crypto and traditional finance.

The newly launched USD1 enters this space with the promise of full backing by U.S. Treasury bonds and other cash equivalents. BitGo, a leader in digital asset custody, is reportedly managing the reserves behind USD1, adding credibility to its claims.​

USD1 vs. Leading Stablecoins

While USDT and USDC dominate today’s stablecoin ecosystem, USD1 seeks to differentiate itself by emphasizing direct U.S. Treasury backing and compliance transparency. Although USDC already claims more than 80% of its reserves in Treasury bonds, USD1’s direct link to government-backed assets may appeal to risk-averse investors. However, its high-profile ties to the Trump family have raised political concerns. While some retail investors aligned with Trump may see this as a strength, large institutions like banks and hedge funds have voiced skepticism about politically affiliated or privately issued stablecoins, emphasizing the need for stricter regulations.​

Impact on the Canadian Financial System

A Bloomberg survey reports that stablecoin transaction volumes exceeded $10 trillion in 2024, largely driven by U.S.-based exchanges and DeFi platforms. This positions USD1 well for integration into existing markets—assuming regulators and institutions welcome it. In Canada, the regulatory landscape for stablecoins is still developing.

The Canadian Securities Administrators (CSA) have been working with crypto asset trading platforms (CTPs) to balance investor protection with the desire for innovation in the capital markets. Rather than creating a new regulatory regime, the CSA has applied long-standing securities law principles to its analysis. They have taken the position that how crypto assets are traded off the blockchain results in the creation of marketplaces with sellers and purchasers holding contractual rights to, rather than direct rights in, the underlying assets (Crypto Contracts).

Crypto Contracts are considered either securities (investment contracts) or derivatives. CTPs willing to work with the CSA were temporarily granted certain marketplace, trade reporting, and prospectus relief but were subject to pre-registration undertakings (PRUs) as well as terms contained in exemption orders that imposed on them registrant-type obligations, tailored to reflect the nature of crypto assets

Regulatory Hurdles for USD1 in Canada

On December 3, 2024, Circle Internet Financial, LLC (Circle), the issuer of USDC, became the first stablecoin issuer to file an undertaking with the CSA. This undertaking allows USDC to continue being traded in the Canadian market, ahead of the regulators’ December 31 deadline.

The CSA has set out terms and conditions for trading value-referenced crypto assets (VRCAs) with clients. Stablecoin issuers wishing to continue trading in Canada are expected to enter into an undertaking, making them commit to complying with certain regulatory requirements. The deadline for compliance has been extended multiple times, with the latest extension until December 31, 2024. Given this regulatory environment, USD1 would need to navigate these requirements to gain traction in the Canadian market.

Will USD1 Gain Traction in Canada?

Canada’s crypto investors value transparency and regulatory compliance. USD1’s strong financial backing and claims of legal structure could appeal to those in the country’s emerging crypto space. However, its political connections, national scrutiny, and complex regulatory landscape might make it less attractive in a market where neutrality and risk avoidance are top priorities.

For now, Canada’s evolving crypto ecosystem is observing developments closely. Whether USD1 becomes a local staple or just another experiment in digital currency will depend on regulatory responses, investor trust, and the coin’s performance in a dynamic national and international crypto scene.​