Why Canada’s Big Banks Are Turning to Blockchain Again

This month saw several major Canadian banking institutions announce initiatives or updates to their current blockchain projects, signalling further institutional adoption and support. These projects range from launching exchanges, all the way to the introduction of experimental pilot programs. Here’s what you need to know.

Canada’s Big 6 Banks and Their Influence on Blockchain Adoption

The Canadian banking sector differs from the US in many ways. For one, there are only a handful of major banking institutions operating within the country. This group is known as the “Big 6.” Specifically, these banks include the Royal Bank of Canada (RBC), Bank of Nova Scotia (Scotiabank),  National Bank of Canada, Canadian Imperial Bank of Commerce (CIBC), Toronto-Dominion Bank (TD), and the Bank of Montreal (BMO). These organizations control over 90% of the nation’s banking services and assets.

Source – Hamilton ETF

This concentration reflects the significantly smaller number of banks across the country. Canada has around 88 banks compared to the US, which has over 4500 in operation. This structure works to its benefit in some instances, as it enables Canada’s banks to consolidate their efforts, enabling a broader consensus on key issues like blockchain initiatives.

How Canada Lost Its Blockchain Edge

Notably, it wasn’t too long ago that Canada was seen as an innovative leader in the blockchain sector. The country beat its neighbor on several fronts, including integration and approvals.  This scenario led to the nation enjoying an influx of blockchain platforms and innovators between 2018 and 2022.

Canada was one of the first to approve BTC (BTC -3.57%) and ETH (ETH -4.51%) spot ETFs in 2021. Wisely, the Toronto Stock Exchange and Cboe Canada supported these maneuvers, as they offered citizens a regulated way to gain exposure to several leading cryptocurrency markets.

It’s Time for Canada to Reclaim Its Position in the Blockchain Sector

Sadly, Canada has seen a significant slowdown in its blockchain sector due to several factors, including regulatory concerns and a shift in focus by the Big 6. As such, the country that once stood as a pioneering force in the market has now started to lag behind other nations like the US in terms of access and offerings.

Recognizing the need to stay competitive in this vital sector, Canadian banks, regulators, and financial experts have refocused their efforts on integration. Here’s a look at the nation’s leading banks, blockchain programs they have in the works, and what it could mean for the average Canadian crypto investor.

The Samara Platform: Canada’s Tokenized Bond Pilot

The Samara Platform is a pilot program put forth by a collective of several of the nation’s banks. Specifically, the Bank of Canada, TD Bank Group, Royal Bank of Canada, and Export Development Canada joined forces to make this tokenized bond pilot a success.

The program focused on grasping the true capabilities of blockchain-based assets. Interestingly, it utilized a custom-built DLT based on the Hyperledger Fabric to monitor key tasks of the bond’s lifecycle, including issuance, coupon payments, bids, redemption, and trading across the secondary market.

Direct Settlement

This technical structure enabled the bond to be settled directly on the DLT, saving money and time over traditional methods. Additionally, the protocol leveraged a purpose-built token called the wholesale central bank digital currency (wCBDC).

This token features embedded smart contracts that integrate transfer and ownership requirements that must be met before any sale. These smart contracts also reduce counterparty risks, delays, and fees by leveraging blockchain protocols like atomic swaps to ensure full transparency, trackability, and security.

Lifecycle Management

Samara enabled the banks to monitor the life cycle of their bonds in real time and save on clearing and monitoring costs. The project included the issuance of CA$100 million in three-month bonds. Notably, these bonds were only offered to selected investors.

The goal was to gain new insight into practical DLT applications. It also helped the organization understand many of the challenges and benefits that come along with tokenization. Lastly, it gave a glimpse into how the public and banking sectors can work together to integrate these assets successfully.

Key Lessons from Canada’s Blockchain Bond Experiment

The project taught the banks that these products were in high demand and were more manageable than traditional bonds. It also revealed how blockchain bonds significantly increase efficiency, data purity, and monitoring capabilities.

Cons

The participants noted some downsides to the product. The main downside is the regulatory and technical hurdles that the group had to overcome to bring the bonds to the market. This complexity added to the price and overall time it took to launch these assets.

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Why Project Samara Matters for Canadian Blockchain Finance

The Samara Project is seen as a key step in creating a strong foundation for the Canadian blockchain sector moving forward. Speaking on its success, the Executive Director of Payments, Supervision, and Oversight of the Bank of Canada, spoke on how the collaboration is the first step to driving further innovations that serve Canadians.

Bank of Canada (BoC)

The Bank of Canada (BoC) entered the market in 1935. Today, it serves as the nation’s central bank. As such, it plays a crucial role in laying out many of the nation’s monetary policies and strategies designed to drive financial stability.

The BoC has long sought out innovation to help integrate blockchain assets. Before Samara, the bank worked on a blockchain pilot called Jasper. It also played a vital role in supporting and integrating a SWIFT blockchain settlement feature, and it continues to research the use of CBDCs.

Royal Bank of Canada (RBC)

The Royal Bank of Canada is another Project Samara participant that has a history of pioneering innovative blockchain products. The bank launched in 1864 as Merchants Bank of Halifax before changing its name in 1901.

The RBC is one of Canada’s largest banks, currently with +$1.6T in assets under management. It achieved this success via several advantageous mergers, including acquiring City National Bank in 2015.

Notably, RBC is also a participant in the SWIFT blockchain initiative geared towards integrating tokenized settlement options. In 2017, RBC initiated several additional pilot programs to explore the capabilities of blockchain assets. Today, it retains this innovative spirit via its most recent efforts.

Toronto-Dominion Bank (TD)

The Toronto-Dominion Bank launched in 1955 following a merger with Dominion Bank. Notably, the bank controls over $2T in assets and has a long, vibrant history in the Canadian banking sector.

In February 2000, TD acquired Canada Trust, providing it with more access to retail services. This maneuver was followed by a push into the US markets via Banknorth. This strategic maneuver provided the company with 1,100 US branches in addition to its large presence in Canada.

Expansion

Notably, TD is a participant in both the SWIFT and Samara blockchain projects. The bank is a strong supporter of tokenized assets and the DLT settlement process. It’s also touted how the technology improves cross-border transfers.

Scotiabank

The Bank of Nova Scotia is regarded as the 3rd largest financial institution in the country. It was the first bank to open in Halifax, Nova Scotia and has been in operation since 1832. In the mid-80s, the bank experienced several mergers, which expanded its reach and assets under management.

In the early 2000s, Scotiabank expanded its operations into the Caribbean and Latin America via the acquisition of ING Direct Canada. This maneuver helped cement the bank as an international banking option.

Alphapoint

Interestingly, Scotiabank has been a long-time supporter of blockchain technologies. In 2017, it began a pilot with Alphapoint. This system was a predecessor to today’s blockchain trading applications. It provided valuable insight into these products and is seen as laying the foundation for today’s projects.

Currently, Scotiabank offers several blockchain-related assets. It’s also involved in a variety of blockchain pilot programs designed to explore the feasibility of this technology in the institutional sector.

Dynamic Funds

Dynamic Funds, Scotiabank’s asset-management division, launched the Dynamic Active Multi-Crypto ETF (DXMC) in partnership with digital asset manager 3iQ. This initiative packaged several blockchain assets, including Bitcoin, Ether, Solana, XRP, and more.

This fund leverages dynamic allocation to promote long-term growth alongside a minimal fee structure. As such, the project is seen as a strong step in the right direction for the Canadian crypto vector.

3iQ

Notably, 3iQ has been instrumental in promoting crypto adoption in the country. It launched the first publicly traded spot Bitcoin funds in Canada way back in 2021. These funds were a massive success, securing more than CA$1B. Notably, the company was acquired by Coincheck for $111.84 million this year via stock purchases.

To make this product a reality, Scotiabank partnered with digital asset manager 3iQ. The company plays a crucial role as a sub-advisor, leveraging its years of experience to ensure the crypto basket is profitable in the long term.

This product is seen as a much-needed bridge between the crypto and institutional sectors. It provides several benefits, including diversity, low management fees, and the backing of some of the nation’s top financial institutions.

Bank of Montreal (BMO)

The Bank of Montreal is Canada’s oldest financial institution. It launched in 1817 and has been a pioneering force in North American finance for over 200 years. As Canada’s first bank, it experienced several financial scenarios and helped to write the nation’s current banking policies.

By 1900, the bank had expanded across the nation, survived the great depression, two world wars, and several mergers. In 1994, it attempted to merge with Royal Bank but was blocked by regulators out of fears of consolidation.

Batavia Platform

The Bank of Montreal has been a participant in several high-level blockchain pilot programs. In 2017, BMO participated in the Batavia platform pilot, a blockchain-based trade finance network developed by IBM and supported by UBS that focused on digitizing international letters of credit.

In 2019, BMO adopted Hyperledger Fabric as its infrastructure in the blockchain space. The bank has shown considerable interest over time in blockchain efficiency and cost savings.

Canadian Imperial Bank of Commerce (CIBC)

The Canadian Imperial Bank of Commerce was launched in 1961 after several mergers. Today, it is the 5th largest bank in the country. Keenly, its founder, William McMaster, envisioned the bank as a trade financing hub for the country.

In the early 2000s, it expanded into the US, and in 2017, it made several key acquisitions, including PrivateBancorp for $5B. This acquisition expanded the bank’s reach and helped it to generate more investor support.

Canadian Banks Reignite Blockchain Innovation

When you examine the rich history that Canadian banks have in the blockchain market, it’s easy to see why some feel as if it’s time to reignite the innovative spirit. These organizations once led the blockchain charge.

Now, they have fallen behind the international pace. Hopefully, this latest initiative will help to push Canadian blockchain projects to the next level, driving adoption and innovation moving forward.

Learn about other interesting blockchain developments here.