Canada’s Stablecoin Draft Allows Usage Rewards, Bars Issuers Paying Yield via Third Parties

Introduction

Canada’s Department of Finance has released a draft set of regulations governing stablecoins, opening a 60‑day public comment period that runs until 23 December 2026. The proposal builds on the Stablecoin Act, which received royal assent in March 2026, and aims to clarify what kinds of incentives issuers may offer while protecting the financial system from products that compete directly with bank deposits. The draft outlines permissible usage rewards, bans yield payments—even through third parties—sets redemption‑fee limits, and defines reserve‑holding requirements. The rules are expected to take effect in the fall of 2027.

Rewards vs. Yield: Drawing the Line

The core distinction in the draft centers on the purpose of a payment. A usage reward is tied to an actual transaction—such as a fee rebate for spending the stablecoin or a bonus for completing a specific on‑chain action. Because the reward is contingent on use rather than ownership, it is permitted as a tool to encourage adoption.

Conversely, any payment that compensates holders simply for holding the stablecoin is classified as yield. This includes direct interest from the issuer, income‑sharing arrangements, or indirect schemes where a third party pays holders a return derived from the issuer’s reserves. The draft explicitly bars such arrangements, even if the issuer does not make the payment themselves. The rationale is to keep stablecoins from becoming de‑facto deposit alternatives that could undermine traditional banking products.

Redemption Mechanics and Fee Caps

To protect users, the draft mandates that holders may redeem stablecoins at par value with no minimum redemption amount. Issuers must complete redemption requests within three business days. While issuers can impose daily limits during periods of liquidity stress, any redemption fee is capped at 1 % of the amount redeemed. This ceiling is higher than current market practice (around 0.1 %) but is intended to give newer and smaller issuers operational flexibility.

Reserve Requirements and Custody

Issuers must maintain reserves equal to the total outstanding stablecoins at the close of each business day. Acceptable reserve assets include:

• Cash and demand deposits
• Government securities maturing within three months
• Overnight reverse repurchase agreements
• Money‑market funds that hold only the aforementioned assets

Reserves may generate returns, but issuers must retain enough assets to preserve a one‑to‑one backing ratio. Custodians of these reserves must be Canadian‑incorporated financial institutions, ensuring domestic oversight.

Implementation Timeline and Enforcement

The proposed rules are slated to become effective in fall 2027, coinciding with the activation of the Stablecoin Act. The Bank of Canada will register and supervise issuers, and it plans to issue its own guidelines for consultation after the final rules are published. Existing issuers will have a 30‑day window after the act’s commencement to either register or cease operations.

Penalties for serious violations can reach C$10 million, underscoring the government’s commitment to enforce compliance. The cost analysis accompanying the draft assumes five issuers will fall under the regime, citing current players such as Stablecorp’s QCAD, Loon Technology’s CADC, and Circle’s USDC, with expectations of additional entrants once the framework is solidified.

Practical Takeaways

• Design incentives carefully: Rewards must be linked to actual usage, not merely to holding the token.
• Plan for redemption costs: Incorporate the 1 % fee cap and three‑day processing window into liquidity models.
• Secure compliant reserves: Ensure daily reserve coverage with eligible assets and partner with a Canadian‑based custodian.
• Monitor regulatory timelines: Begin internal compliance reviews now to meet the fall 2027 deadline and avoid potential penalties.

By drawing a clear line between permissible usage rewards and prohibited yield payments, Canada’s draft aims to foster stablecoin innovation while safeguarding the broader financial system. Stakeholders should use the comment period to provide feedback on practical implementation challenges, particularly around reserve management and fee structures, to help shape a balanced final rulebook.