Crypto-Backed Lending Is Here. Now Canada Needs to Make It Work.

Abstract: Canada is writing rules for the institutions that issue stablecoins. The next question is how lenders can use them. A loan might remain denominated in Canadian dollars while a stablecoin moves the funds. A redeemable stablecoin might secure the loan. A lender might eventually draw institutional funding through the same infrastructure. Each use raises questions that issuer regulation alone cannot answer. As the federal framework takes shape, Canada has an opportunity to define how digital money can support credit while preserving the legal certainty and borrower protections on which lending depends.

A lender can admire the technology and still ask an old-fashioned question: If I advance this money, how do I get it back? That question has several answers when a loan involves digital assets. The borrower may pledge Bitcoin, receive proceeds in a stablecoin and repay from a wallet in another country. Funds can move quickly, but speed does not establish who controls the collateral, whether a payment is final or what the lender can recover after a default.

The scale makes these questions difficult to put aside. KPMG Canada reports that annual stablecoin transaction volumes exceed US$10.8 trillion and estimates that roughly 99.7 percent of stablecoins are denominated in U.S. dollars. Transaction volume is not lending volume, but it shows how substantial the infrastructure has become. For Canadian lenders, it presents a practical choice: how to use faster global payment rails while managing foreign-exchange exposure and reliance on systems built largely outside Canada.

Coinbase has described the promise clearly. In a commentary on Canada’s framework, Lucas Matheson, then Coinbase’s Country Director for Canada, wrote: “Stablecoins can transform how Canadians interact with money by reducing friction, speeding up transactions, and opening the door to new ways of doing business.” The credit opportunity within that broader vision deserves its own attention. Lenders need to know when a stablecoin is simply moving loan proceeds and when the coin itself is an asset on which the loan depends.

There is evidence that borrowers want access to this kind of credit. Coinbase reported more than US$2.17 billion in USDC loan originations through Morpho as of April 14, 2026, following its U.S. launch. It has since introduced the borrowing product in the UK. Those figures do not describe Canadian lending, but they do show what happens when a borrower can pledge a digital asset and obtain liquidity without selling it.

Canada’s debate should now move beyond the general category of “crypto-backed lending.” Consider three distinct transactions. In the first, a conventional CAD or USD loan is disbursed and repaid using a fiat-backed stablecoin. In the second, a borrower pledges stablecoins as collateral for a loan. In the third, a specialty lender uses stablecoin infrastructure to access an institutional funding facility. The first is primarily a question of payments and settlement; the second turns on custody, redemption and enforceable security; the third brings funding and liquidity risk into the picture. Treating them as one product would produce rules too vague to guide any of them well.

The first transaction may be the best place to start. A Canadian lender could make an ordinary commercial loan under an ordinary credit agreement, with a stablecoin used to deliver funds to a cross-border SME borrower or collect repayments. The potential gains are faster settlement and more predictable movement of money. The lender would still have to determine which currency the borrower owes, when payment legally occurs, who bears conversion costs and what recourse exists if funds reach the wrong wallet. A controlled pilot could test those questions against a real commercial use case before anyone claims that the model is ready for broad adoption.

Collateral requires a separate standard. Bitcoin can fall sharply in value, making margins and liquidation procedures central to the loan. A fiat-backed stablecoin may be designed to hold a steady value, but its usefulness as collateral depends on the rights behind it: who can redeem it, how quickly, which assets support it and who has control when a borrower defaults. Research from the Bank of Canada on Aave V3 shows why the mechanics matter. In the period studied, the ten largest liquidation waves accounted for approximately 80 percent of liquidated volume. That finding concerns one decentralized protocol, but it is a warning against assuming that collateral can always be sold smoothly when many borrowers come under pressure together.

Borrowers also need to understand the assets and obligations involved. Research published by the Financial Consumer Agency of Canada found that four percent of survey respondents owned stablecoins, but only 21 percent selected an accurate definition of one. Among current and former owners, 49 percent reported a negative experience. A loan agreement cannot rely on a borrower’s familiarity with an app as evidence that they understand redemption, custody or the circumstances in which pledged assets may be sold.

The policy opening is specific. Canada’s Stablecoin Act establishes requirements for fiat-backed issuers, including reserves and redemption, with supporting regulations still in development. The federal framework focuses on issuance by non-financial institutions. Lending uses must also be considered alongside payment regulation, provincial securities law, anti-money-laundering obligations and, for federally regulated institutions, OSFI’s crypto-asset guidance. The Canadian Securities Administrators have already made clear that crypto-backed lending platforms may face securities-law requirements depending on their structure. The issue is how these rules work together when a lender designs a specific loan.

There is another distinction regulators should preserve. The Stablecoin Act prohibits an issuer from directly or indirectly paying yield merely for holding its coin and restricts the use of the assets backing it. That protection for coin holders should remain intact. A separate question is how an independent lender charges interest on a genuine loan, or how an institutional funder earns a return on a credit facility that uses stablecoin payment rails. Clear guidance would help distinguish credit activity from arrangements that attempt to turn an issuer’s stablecoin into a yield-bearing product.

This is work the CLA’s Crypto-backed Lending Roundtable can take on. At our October 15 meeting, I look forward to insights from Eric Richmond, the new Country Director and CEO of Coinbase Canada, and Tracy Wood of Questbank. Lenders, issuers, custodians, payment providers and legal experts can map a small number of real transactions, identify where guidance is missing and develop voluntary standards for custody, wallet verification, disclosure and recovery.

Canada does not need to decide whether digital assets are interesting. It needs to decide what rights and responsibilities attach when they become part of a loan. The stablecoin framework can protect the money. The next chapter must explain how that money supports credit.

Key points

1. Canada’s stablecoin framework addresses issuers, while lenders need coordinated guidance on the use of stablecoins in credit.
2. Conventional loans using stablecoins for disbursement and repayment offer a focused first use case for commercial lending.
3. Loans secured by stablecoins require clear rights to custody, redemption, control and recovery.
4. Institutional funding through stablecoin infrastructure deserves study as a separate and more complex use case.
5. The CLA Roundtable can turn these questions into transaction-specific standards and a focused policy proposal.