A stablecoin is defined by the FSB as a ' ‘cryptocurrency that aims to maintain a stable value relative to a specific, asset, or a pool or basket of assets’’.
Stablecoins are electronic, can be exchanged peer-to-peer and are not issued by central banks. They are token-based; their validity is verified based on the token itself, rather than the identity of the counterparty (see BIS Working Papers: Stablecoins: risks, potential and regulation, November 2020).
Two main varieties of stablecoins currently exist:
Algorithmic stablecoins are pegged to a reserve asset such as the US dollar, gold or any other foreign currency. They help achieve price stability.
Collateral-backed stablecoins rely on collateral to back the value of the coins (fiat currency, such as U.S. dollars, euros, gold) .
The market value of existing stablecoins (Tether, USD Coin, Dai, etc.) reached USD 14 bn in August 2020 (BIS, November 2020).
Stablecoins are subject to reporting requirements under Canadian securities laws outlined in CSA Staff Notice 51 363 Observations on Disclosure by Crypto Assets Reporting Issuers. Notice in which the Canadian Securities Administrators (CSA) provides guidance on continuous disclosure obligations for reporting issuers dealing in digital assets, including stablecoins. See our summary here.