Calgary-based fintech launches Canadian dollar-backed stablecoin

Calgary-based Tetra Trust Co. has launched what it claims to be the first Canadian dollar-backed stablecoin issued by a financial institution, introducing another domestic alternative to the U.S. dollar-denominated digital currencies widely used for payments and settlements.

The Alberta Treasury Board and Finance approved CADD, the Canadian dollar-backed stablecoin issued by Tetra, earlier this month. This comes months after Stablecorp Digital Currencies Inc. received approval to launch its Canadian-dollar stablecoin, dubbed QCAD.

Both CADD and QCAD are backed with 1:1 Canadian dollar reserves located in Canada.

Canadian financial institutions and technology companies like Tetra Digital Group, Urbana Corp., Wealthsimple Inc., Purpose Unlimited, Shakepay, ATB Financial, National Bank of Canada and Shopify Inc. are among Tetra’s investors and CADD holders, it said.

“They all saw use-cases within their environment,” Didier Lavallée, founder and CEO of Tetra Digital Group, said in an interview. “They wanted to deploy stablecoins or are currently utilizing U.S.-denominated stablecoins, and they’re looking to bring in a Canadian token.”

Experts say stablecoins are the key to real-time trading in tokenized financial assets, and also have the potential to unlock efficiencies for financial institutions.

Currently, most stablecoin transactions around the world are business-to-business settlements, Lavallée said.

In the future, stablecoins can serve as the settlement layer for tokenized financial assets, such as tokenized equities and derivatives, Soumak Chatterjee, partner in payments and digital assets at Deloitte Canada, said in a recent interview. “If stablecoins get mainstream adoption as a mechanism for moving value and money, you’ll suddenly see liquidity being unlocked.”

Tokenized assets tout the benefits of instant settlement, but that can’t happen if they’re still traded with fiat currency. Stablecoins will allow tokenized assets to settle in real time, Lavallée said. “It’s the gate to unlocking all tokenization, because it’s the settlement layer that is going to be crucial.”

Treasury efficiencies

Stablecoins also have the potential to unlock treasury efficiencies and speed up settlement for financial institutions that regularly settle large transactions. Currently, financial institutions need to position cash overnight to settle transactions with other institutions and the Bank of Canada. Buying government bonds or ETFs takes a full business day to transact, said Lavallée.

“There’s always an amount of capital that’s not positioned perfectly, and that’s a pretty painful activity,” he said.

When large institutions need to settle funds in the order of billions over long weekends, nothing is earned on that capital just sitting there, Lavallée added. Stablecoins can make treasury cycles more efficient and ensure every dollar is deployed immediately.

There are no shortage of online platforms that move funds between different countries’ stablecoins and fiat currency, but there is still a challenge in domestic interoperability.

While clients expect foreign exchange services to charge a fee, exchanging between stablecoins of the same denomination needs to happen for free, Lavallée said. This becomes more important when Canadian stablecoins grow beyond just CADD and QCAD; the industry needs to find a way to make domestic exchanges work.

“It’s a problem around fungibility,” Lavallée said.

“If you believe the concept that this is digital money, you shouldn’t be incurring transactional fees. … Nobody in the ecosystem will try to exchange $1 for four quarters with a transaction fee.”