CW3 Submission to OSC Statement of Priorities 2025-2026

On December 20, 2024, CW3 submitted to the OSC Statement of Priorities for Fiscal Year 2025-2026. Below is an overview of our submission and key recommendations:

Statement of Priorities for the Web3 and Payments Sectors

CW3 supports the OSC’s goals to i) deliver effective regulatory actions in anticipation of emerging trends, and ii) enhance the experience of individual investors. Specifically,

• Goal 1, Priority #4 focusing on crypto asset trading platforms, regulation of value referenced crypto assets (i.e., VRCAs) and decentralized finance. In light of these priorities, we encourage the OSC to also review the requirements for digital asset custodians and qualified custodian requirements, and to continue work on the tokenization of off-chain assets (i.e., real world assets). We also encourage initiatives that consider the possibility of expanding the offering of regulated investment products that invest in crypto assets other than BTC and ETH.
• Goal 2, Priority #6. We encourage the OSC, to expand the priority to reduce the friction of using stablecoins for users of crypto asset trading platforms.
  
  

With respect to the OSC’s goals we offer the following comments:

Value Referenced Crypto Assets (“VRCAs”) and its impact on the tokenization of off-chain assets and the payments ecosystem

We are strong advocates for establishing a federal framework for VRCAs that is consistent with other global jurisdictions given the important role of stablecoins in global payments and finance.

For 2025, we urge the CSA to revisit its interim guidance to regulate VRCA issuers (and VRCAs) under securities laws. We ask the OSC to reconsider its position given the global developments on VRCAs, and the impact of the CSA’s interim guidance on Canadian businesses, consumers. This approach also creates significant friction:

• Businesses using stablecoins to pay employees or vendors face uncertainty over whether their transactions involve securities and the implications from both a tax and regulatory perspective.
• Consumers must worry about tax implications when using stablecoins for everyday payments.
• Payment service providers accepting stablecoins must consider whether they are effectively dealing in securities and need to register as securities dealers.
• New VRCA issuers face hurdles to list their stablecoins given the restrictions imposed by CSA SN 21-333. The restriction discourages new product innovation particularly for a CAD denominated stablecoin, and undermines the development and adoption of new payment networks, applications and products in Canada.

Emerging Global Trends for VRCAs and Developments in Canada

• The tokenization of off-chain assets (i.e., real world assets) requires a digital money equivalent for on-chain settlement. To realize the full benefits of tokenization (e.g., to unlock liquidity for tokenized assets through marketplaces that facilitate trading and settlement on-chain, back-office efficiencies etc), it’s critical to address the function and status of VRCAs as digital money equivalent. Tokenized real world assets valued in CAD requires a CAD denominated digital money equivalent.
• We believe that regulating VRCAs as securities and/or derivatives simply does not work – for fintechs, for users, or for Canada. The emerging global trend is that VRCAs are increasingly used in payments, and this calls for VRCAs (and VRCA issuers) to be regulated as payment instruments or as digital money equivalent under a licensing and prudential framework. The CSA established its position in February 2023 that VRCAs could be securities and/or derivatives in several jurisdictions. Since that time, legislation introduced in other global jurisdictions shows that Canada stands alone with that view. We urge the CSA to reconsider its position.
• The undertaking provided by the global issuer of USDC and accepted by the CSA allows crypto trading platforms (“CTPs”) to continue to offer USDC. However, it creates challenges for Canadian stablecoin issuers particularly if they are providing cross-border payment and/or global on-chain foreign exchange solutions. Canadian non-bank VRCA issuers have no current path to obtain an e-money license to operate in Canada. So, they are required to submit to CSA jurisdiction and to comply with securities legislation. In doing so, the distribution of VRCAs (e.g. on CTPs) in Canada is regulated under a disclosure/account appropriateness regime. However, as specified in the Circle undertaking, USDC is not a security in other global jurisdictions. The misalignment with other global jurisdictions creates conditions that are unworkable for fintechs who develop and/or offer payment solutions in Canada and globally. While VRCA issuers can apply for an exemption from securities laws, the process can be time consuming and costly. Such requirements present another hurdle for fintechs in Canada.
• Fintechs are engaging with Federal policymakers to bring VRCAs under a federal framework. From the industry’s perspective, VRCAs function as digital money equivalent for trading and settlement on-chain, as well as for payments and remittances. We believe that the use of VRCAs should be brought under the Retail Payment and Activities Act, and that non-bank issuers of VRCAs should be brought under an existing, or a new, federal licensing and prudential supervisory framework.
  
  

Given these developments, we believe that there is sufficient basis for the CSA to either rescind CSA SN 21-333, or at least to issue interim staff guidance clarifying that fintechs offering payment solutions using VRCAs do not need to seek an exemption from securities law.

Develop a digital asset taxonomy

We encourage provincial and federal policymakers and regulators to clearly define what is—and isn’t—a security, a derivative, a payment instrument, or a digital money equivalent.

Definitions should also be harmonised across federal and provincial legislation. This would provide much-needed clarity for VRCA issuers, crypto asset service providers and users, and help determine who should regulate what. Without a formal definition of crypto asset, there is a possibility, for example, that a tokenized money market fund could be classified as an alternative mutual fund, which would make such funds unsuitable for all retail investors. See CW3 comments to CSA Notice and Request for Comment – Proposed Amendments to National Instrument 81-102 Investment Funds Pertaining to Crypto Assets (April 17, 2024).

Decentralized Finance (“DeFi”)

DeFi protocols will facilitate the transition to an open, digital economy. We are supportive of efforts to understand how Canadian and global businesses use DeFi protocols before introducing guidance or regulations.

There are ample global use cases and projects currently underway that seek to connect participants in traditional financial markets with each other, and to use DeFi protocols to transact over existing/new payment rails/ledgers. The technology and use cases continue to evolve rapidly. We stress the importance of gaining an in-depth understanding of the use cases before deciding on the appropriate extent and manner of regulation in order to develop DeFi’s potential.

Conclusion

We thank the OSC for the opportunity to provide comments. This is a pivotal moment not only for the web3 industry, but also for Canada and Canadians. Canada risks being left behind without a CAD denominated stablecoin for use in global payments and finance. 

We urge policymakers to commit to action for digital assets on a national and provincial level that will help drive Canada’s transition to a digital economy.