Why Canada's Stablecoin Yield Restriction Could Benefit Users

After 15 years in investment banking and corporate finance, followed by a move into blockchain technology, I hold a somewhat contrarian view that differs from most stablecoin stakeholders: Canada’s restriction on stablecoin yield may be good for consumers.

I am seeing a lot of stablecoin proponents both in the U.S. and Canada express the view that being able to pass through yield (either directly or indirectly as rewards) is positive for stablecoin issuers and holders. Specifically, the September 15, 2026 Senate vote not to advance the CLARITY Act left room under the existing GENIUS Act for certain intermediaries to continue paying rewards to U.S. stablecoin holders.

I would argue that Canada’s Stablecoin Framework, once in force, will be more limiting for Canadian stablecoin issuers because it prohibits paying yield to holders “directly or indirectly”. This appears to restrict the payment of issuer-funded rewards routed through intermediaries, even if a fully independent third-party reward sits outside the issuer ban. This is a net positive for Canadian stablecoin holders as it preserves the distinction that a stablecoin should be first and foremost a payment and settlement instrument and not a product where users or consumers deliberately accept more risk to earn a return on their digital cash.

Whilst reward programs may be necessary to bootstrap adoption, circulation and market liquidity, issuers should ideally be competing on reserve credit quality, concentration, duration, liquidity, custody, and the capacity to meet redemption demand during market stress. This is where the implementing regulations will need to ensure that adequate constraints exist within the reserve backing portfolio parameters to truly ensure successful redemptions upon a sudden wave of redemption requests.

Another factor, in reality, is that the reward economics paid for holding stablecoin balances obscure the true underlying nature of the reward. Holders will not easily know whether the reward comes from reserve income, an issuer revenue-sharing agreement, or an intermediary’s marketing budget. Nor would a holder necessarily know how much of the reserve income is retained by the issuer or the intermediary, and whether the rewards program involves additional custody, credit or protocol risk, which leaves consumers with less transparency into how and why the rewards were generated.

Yes, the Canadian restrictions create meaningful initial friction for Canadian stablecoin holders especially due to the current lack of CAD-denominated on-chain digital assets. For institutional and business holders, prudent treasury management forces them to determine for idle stablecoin balances the trade-offs: foreign currency risk on-chain by swapping via a DEX and investing in USD-denominated digital assets, or off-ramping via CAD cash and conventional accounts, with the added friction of having to go through multiple KYC/KYB processes if they need stablecoins again.

What is positive about Canada’s stablecoin yield restrictions is that they force holders and consumers to focus on the primary function of a stablecoin as a settlement or payment instrument as opposed to perceiving that the better stablecoin is the one that pays the highest effective yield via rewards or otherwise.

Conversely, the more stringent Canadian yield prohibition could make stablecoins less competitive than U.S. stablecoins. In the medium to longer term, however, once Canadian tokenized real-world assets and money market funds move on-chain, the prohibition is likely to have less of an impact - as generating yield will be a function of Canadian stablecoin holders making deliberate investment decisions on how to invest their idle stablecoin balances within regulatory-compliant protocols that offer explicit risk and liquidity disclosures, independently produced NAV information and custodial and fund manager attestations, and an on-chain record of subscriptions, redemptions and settlement.

In the interim, however, Canada faces a genuine bootstrapping problem. CAD stablecoins are entering a market where U.S.-dollar stablecoins have had a significant head start, deeper liquidity and access to a much larger on-chain product ecosystem. Whilst I support the longer-term separation of stablecoins from yield-bearing investment products, Canadian policymakers should consider creating a narrowly defined and time-limited exception for issuer-funded adoption incentives during the market’s initial development. These incentives could be capped, funded from issuer profits rather than reserve assets and required to expire once specified adoption or liquidity thresholds are reached.

Longer term, I am more optimistic that the issue of yield on idle balances largely disappears once Canadians can access on-chain real-world asset investments such as money market funds, equities, bonds and other instruments. In this regard, the U.S. digital asset market is significantly further ahead.

The infrastructure needed to support this separation between digital cash and investment products is the problem I designed the StableYield prototype to address. StableYield demonstrates how institutional investors could use CAD stablecoins to subscribe to and redeem from tokenized Canadian funds without turning the stablecoin itself into a yield-bearing product. You can read more about the StableYield Protocol here: Building StableYield

Attached below is a video demonstration of our StableYield protocol.

For a daily summary of Canadian stablecoin activity, check out the Canadian Stablecoin Dashboard