National Bank is backing a new Canadian dollar stablecoin, marking the first such crypto investment by a Big Six bank and a significant step towards blockchain’s integration with the country’s financial system.

The Montreal bank joined Province of Alberta-owned bank ATB Financial, as well as Shopify, Wealthsimple, Shakepay, Urbana and Purpose in a $10-million funding round for Tetra Digital Group, the parent of Calgary crypto trust company Tetra Trust. Tetra plans to put $3 million of the financing towards developing the stablecoin, a digital asset whose value will be pegged to that of the Canadian dollar.

Tetra plans to issue the stablecoin, which it has not yet named, in early 2026, once its principal regulator, Alberta’s Treasury Board and Finance, agrees to supervise it, said Tetra CEO Didier Lavallée.

It also plans to start by testing the new stablecoin to settle payments between businesses and isn’t planning to focus on making it available to the public at first. Wealthsimple experimented with making payments in stablecoins with two digital asset trading partners in May, finding they reduced the risk one of the parties would fail to meet its obligations by settling the payments immediately.

“We are trying to find institutional business cases for this token, first and foremost,” Lavallée said.

Lavallée said all the backers are “crypto curious” and feel a sense of urgency around creating a made-in-Canada stablecoin to compete with the flood of U.S. dollar ones expected to hit the market soon. “It’s very clear that financial institutions are paying attention to the speed and velocity of change in the U.S.,” he said. “A lot of them are essentially evaluating different opportunities in the digital asset space.”

Stablecoins, like everything else in crypto, have until now mostly been used to facilitate speculative trading by helping people swap one crypto asset for another on exchanges. But recent U.S. legislation could pave the way for companies from Walmart to big banks to issue their own stablecoins. The U.S. Treasury Borrowing Advisory Committee predicts this could open the floodgates to mainstream consumer payments, with the sector growing eightfold to US$2 trillion by 2028. Crypto boosters and regulators alike warn that could pose a threat to Canadian monetary policy.

Joshuah Lebacq, principal at NAventures, National Bank’s venture capital arm, said in a statement that the bank invested because “we want to play an active role in developing an infrastructure that could be important for the future of Canadian financial services… We chose to act now, in order to be ready for what may come.”

The investment is another example of National Bank breaking from its peers to take a risk in financial innovation. It’s the only major Canadian bank to offer a secure data feed for customers who want to use fintech apps, giving it a head start on open banking. In 2021, the lender spent $103 million to secure a majority stake in Flinks, a Montreal-based financial data aggregator.

The bank is investing despite a lack of clarity around the legal status of stablecoins in Canada. The Department of Finance is in the process of creating a legislative framework for stablecoins, while the Canadian Securities Administrators, an umbrella organization for provincial securities regulators, issued a notice in 2023 stating that stablecoins may be securities, which means both their issuers and the platforms that offer them for sale in Canada need to register and follow its rules. In the absence of federal law, it remains unclear whether uses for stablecoins outside crypto-trading platforms—such as payments and settlement—are permitted in Canada.

Further integrating crypto with the Canadian financial system carries risks. International regulators have been sounding the alarm about stablecoins for years, warning their widespread adoption could threaten economic growth and spark contagion if they collapse, as the 2022 failure of the stablecoin Terra did. The Bank of Canada flagged crypto as an emerging risk to the financial system in 2021, and the Office of the Superintendent of Financial Institutions has said digital innovation “presents risks to our financial system.”

Matthew Burgoyne, chair of the digital assets and blockchain group at Osler, Hoskin & Harcourt in Calgary, said Canada’s strict banking rules make it much less likely that a stablecoin would lose its peg to the dollar like the popular token USDC did in 2023 following the failure of Silicon Valley Bank, which held some of its reserves.

Burgoyne said holding the stablecoin’s reserve assets in a trust would legally protect stablecoin holders in case of insolvency, limiting the risk of contagion since creditors wouldn’t need to go after a stablecoin issuer like Tetra in bankruptcy proceedings. The risk of a Canadian bank that holds the stablecoin’s reserve assets failing is far lower than it is in the U.S., he said. Even if it did, Canadian banks can’t lend out deposits held in trust, so a failure wouldn’t affect reserves.

“The U.S. banks just take a lot more risks,” he said. “They’re not subject to the same capital controls.”

Lavallée said “it is a risk” that Tetra’s stablecoin will be incompatible with the rules Ottawa ultimately develops—which could happen if, for example, only banks are permitted to issue them. However, he said he thinks that’s unlikely.

Tetra doesn’t currently plan to file a prospectus with securities regulators because it has received a legal opinion that its proposed stablecoin doesn’t meet the legal definition of a security, he said.

Getting people and businesses to use the new stablecoin will be a challenge. Coinbase-backed QCAD, the best-known of a handful of Canadian dollar stablecoins, trades thinly and has little liquidity, according to data from CoinGecko. In contrast, Tether, the most popular U.S. dollar stablecoin, has a market capitalization north of US$168 billion, with US$102 billion worth of it trading hands over a 24-hour period from Thursday to Friday.

Daniel Ordibehesht, head of strategy, corporate development and ventures at ATB, said the bank is investing because it wants “to have a front seat” for the development of a technology that could transform financial services and payments. The other co-investors are well positioned to support the stablecoin’s adoption, he said, comparing them to the consortium of banks that turned Visa into an international payments giant in the ‘70s.

“A stablecoin won’t be successful in Canada if it is not adopted en masse, and it won’t be adapted en masse if it’s not distributed,” Ordibehesht said. “The consortium that we have as a set of partners here really helps with that.”