Financial Sovereignty in a Digital World

As payments, settlement, and capital markets increasingly migrate onto blockchain-based infrastructure, Canada faces important choices about how to preserve financial sovereignty, support resilience, and remain competitive over the long term.

The design and governance of financial “rails” are becoming central to these considerations. Decisions about where infrastructure operates, how it is regulated, and how it connects to global markets will shape not only domestic financial stability, but also Canada’s ability to participate effectively in an evolving digital economy.

On several core points, this challenge is well understood. At the same time, a closer examination of how different infrastructure models are evaluated, particularly public blockchains and permissioned networks, can help clarify the policy tradeoffs involved.

At a moment when policy choices could shape Canada’s financial architecture for decades, careful analysis is needed to distinguish between genuine strategic risks and broader generalizations about how these technologies function in practice.

The Strategic Role of Financial Infrastructure

Discussions about financial sovereignty increasingly turn on a simple but consequential distinction: the long-term resilience of a financial system depends not only on the assets it supports, but on the infrastructure through which those assets are issued, moved, and settled.

Blockchain-based systems are increasingly being used for payments, settlement, custody, and record-keeping because they enable faster settlement, continuous availability, and programmable financial flows. As these systems mature, they increasingly resemble core market infrastructure, rather than speculative or peripheral technologies.

This shift is already visible in traditional financial markets. Recently, the New York Stock Exchange has announced the development of a platform for the trading and on-chain settlement of tokenized U.S. equities and ETFs, designed to support 24/7 trading, fractional ownership, and near-real-time settlement¹, subject to regulatory approval. The initiative reflects a broader move by market operators toward always-on, blockchain-enabled capital markets that integrate trading, settlement, custody, and funding infrastructure.

In this context, it is both reasonable and necessary for governments to consider where validators operate, how data is governed, which legal frameworks apply, and how resilience and continuity are maintained during periods of geopolitical stress. These questions are already being examined by regulators and policymakers across multiple jurisdictions.

The risk of passively outsourcing critical financial infrastructure warrants thoughtful and sustained policy attention.

Public Blockchains and Control

When assessing digital financial infrastructure from a sovereignty perspective, several structural factors are often considered: where infrastructure is physically hosted, how software dependencies are distributed, and how networks respond to regulatory or legal obligations across jurisdictions.

Public blockchains such as Ethereum are often evaluated through this lens because they operate as shared, global infrastructure rather than systems governed by a single institution or jurisdiction. Understanding how these networks function in practice is therefore an important consideration when assessing their role in financial market infrastructure.

One area of focus is infrastructure distribution. Public blockchains rely on independently operated nodes that validate transactions and maintain the network. While cloud service providers play a role in hosting some of this infrastructure, available data suggests that no single provider or region accounts for a dominant share of the network. For example, current estimates indicate that approximately 12–13% of Ethereum nodes operate on Amazon Web Services, and the network’s design allows it to continue processing transactions even in the event of a large-scale outage affecting any single cloud provider.² This redundancy is a core design feature intended to support continuity and resilience.

Another consideration is software diversity. Blockchain networks depend on multiple independent implementations of core software, known as execution clients. While maintaining diversity across these clients remains important for resilience, no single execution client currently accounts for a majority of nodes on the Ethereum network, with the most widely used client representing roughly 40% of the total.³ Ongoing efforts within the ecosystem continue to focus on reducing correlated failure risks and strengthening operational robustness.

Regulatory exposure is another factor often considered when assessing public blockchain governance. Some validators apply jurisdiction-specific compliance measures, including OFAC-related screening. It is important, however, to distinguish between transaction ordering and transaction finality. Data indicates that these practices primarily affect how quickly certain transactions are included in blocks, rather than whether transactions can be reversed, censored, or prevented at the protocol level.⁴ The network continues to process all valid transactions, with validators operating under different compliance approaches contributing to the same shared ledger.

Taken together, these characteristics suggest that public blockchains can exhibit a degree of structural resilience that does not depend on any single operator, software implementation, or jurisdiction. While decentralization is not absolute, it does provide meaningful safeguards against unilateral control that are difficult to replicate in more tightly permissioned systems.

This does not imply that public blockchains are immune to geopolitical considerations. Rather, it highlights that sovereignty risks often arise less from the existence of shared global infrastructure, and more from how jurisdictions choose to participate in, regulate, and rely on that infrastructure over time.

Sovereignty Does Not Require Isolation

An important consideration in assessing financial sovereignty is that it does not require exclusivity.

Canada does not face a choice between reliance on foreign infrastructure and complete domestic self-containment. A more resilient approach is to ensure that Canadian legal frameworks, institutions, and market participants are meaningfully embedded within global financial networks, rather than separated from them.

This can include encouraging Canadian financial institutions, infrastructure providers, and service operators to run validators and nodes on public blockchains from within Canada, subject to Canadian law and regulatory oversight. It can also involve establishing clear, consistent standards for stablecoin issuance, custody, and operational resilience that apply regardless of the underlying ledger.

In this model, sovereignty is exercised through regulation, supervision, and participation, rather than through efforts to replicate global infrastructure solely within national borders.

Permissioned Layer-1s: Trade-Offs and Considerations

One approach sometimes considered in discussions of financial sovereignty is the development of domestic, permissioned Layer-1 blockchain infrastructure designed to operate primarily within national boundaries.

Such models may offer greater direct control over governance and oversight. At the same time, they introduce a set of trade-offs that merit careful consideration when evaluated against Canada’s broader economic and financial objectives.

Experience to date suggests that jurisdiction-bound or tightly permissioned blockchain networks can face challenges in achieving broad adoption, deep liquidity, and sustained developer engagement beyond their immediate policy or institutional environments. For example, Venezuela’s state-backed cryptocurrency Petro was officially shut down in 2024 after more than five years of limited uptake and utility, highlighting the challenges such initiatives can face in generating sustained use beyond narrow government or institutional contexts.⁵

Similarly, research and policy analysis of state-aligned initiatives such as China’s Blockchain-Based Service Network (BSN) illustrate how permissioned blockchain infrastructure is often designed to prioritize governance, compliance, and national policy objectives over open interoperability and market-driven participation.⁶ While such systems can scale through coordinated deployment and state backing, they have tended to integrate primarily within aligned ecosystems rather than functioning as neutral, globally adopted financial infrastructure. This distinction is particularly relevant when assessing suitability for cross-border financial markets and international settlement.

By contrast, much of today’s large-scale stablecoin issuance and tokenized asset activity has developed on open, globally interoperable networks, reflecting where market depth, composability, and cross-border demand currently reside. More than 99% of stablecoin market capitalization is denominated in U.S. dollar-pegged tokens, which predominantly circulate on public blockchains such as Ethereum, Tron, and Solana, underscoring how foundational open systems have become in practice.⁷

Just as the global internet outpaced isolated intranets due to universal interoperability and broad participation, stablecoins have gravitated toward shared networks that support network effects, deep liquidity, and diverse applications.

While this does not rule out the possibility of successful sovereign models in the future, it highlights the practical execution and adoption challenges associated with building more isolated financial rails that lack comparable global reach and market demand.

From a policy perspective, several factors are particularly relevant.

First, liquidity tends to concentrate where networks are broadly accessible. Fragmenting Canadian-dollar liquidity onto a domestic-only rail could increase conversion costs and reduce the international usability of CAD-denominated instruments, introducing friction for Canadian businesses, investors, and exporters.

Second, permissioned Layer-1 systems can replicate certain constraints found in legacy infrastructure. Without open access, composability, and market-driven innovation, such systems may function more like centralized databases than new financial infrastructure. Canada’s experience with the pace and complexity of domestic payments modernization underscores the importance of carefully weighing these dynamics.

Third, concentrating significant financial activity on newly built infrastructure introduces additional systemic considerations. Established public blockchains benefit from years of operational testing, diverse validator participation, and layered security that is difficult to reproduce quickly in new environments.

A Practical Path Forward: Resilience, Neutrality, and Competitiveness

Canadian regulators are right to examine the resilience, neutrality, and governance properties of the Layer-1 blockchain infrastructure on which critical financial products, including stablecoins, may be issued. As blockchain networks increasingly function as core financial rails, these assessments are not only appropriate, but necessary to safeguard financial stability and long-term monetary credibility.

In this context, maturity and scale are critical. Infrastructure that has been tested over years of live operation, supports a broad and diverse set of independent operators, and continues to function across jurisdictions and market conditions, is inherently better suited to serve as critical financial infrastructure. The more decentralized, reliable, and globally integrated a blockchain network is, the stronger its potential contribution to Canada’s financial resilience. 

Recent history also offers cautionary examples. Several centralized or immature blockchain networks have experienced outages or required intervention by small groups of insiders to restore functionality, undermining the security and neutrality such systems are intended to provide. In other cases, blockchain projects have aligned themselves closely with particular jurisdictions or political ideologies, raising questions about neutrality when combined with concentrated control.⁸⁹

At the same time, financial sovereignty should not be conflated with exclusivity or isolation. Relying exclusively on newly built, permissioned blockchain infrastructure for activities such as stablecoin issuance would carry significant economic risk. Such systems are unlikely to attract meaningful global liquidity, developer participation, or cross-border usage at scale. As a result, they could place Canadian-dollar instruments at a competitive disadvantage relative to stablecoins issued on widely adopted public networks.

Paradoxically, this outcome could weaken, rather than strengthen, Canada’s monetary position. If Canadian-dollar stablecoins are confined to closed or lightly used domestic rails, while global commerce, settlement, and digital asset markets continue to coalesce around interoperable public infrastructure, market share will migrate elsewhere. In practice, this would reduce the international relevance of CAD-denominated instruments and increase reliance on foreign-issued alternatives, most of which are currently denominated in and backed by U.S. dollars.

Competitiveness, therefore, must remain a central consideration. Today, the stablecoin market is overwhelmingly USD-based, reflecting not only the dollar’s global role, but also where issuance infrastructure, liquidity, and interoperability are strongest. This has been reinforced by U.S. policy choices that support stablecoin issuance on public blockchains rather than tightly permissioned networks. For Canada to preserve influence in this environment, its regulatory approach should enable participation in the networks where economic activity is already occurring, rather than attempting to redirect that activity onto less competitive rails.

A more durable path forward combines rigorous regulatory oversight with engagement in mature, neutral, and globally interoperable infrastructure. By allowing regulated Canadian issuers and institutions to operate on well-established public blockchains, subject to clear domestic rules on reserves, governance, consumer protection, and compliance, Canada can support innovation, resilience, and competitiveness simultaneously.

In a digital financial system, sovereignty is not secured by insulation alone. It is secured by ensuring that Canadian institutions can operate at scale, under Canadian law, within the global financial infrastructure that markets actually use.