Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Canadian Crypto Industry is Working Towards Legitimacy
DLA Piper | Don Collie, Ryan J. Black, Saje Gosal | Aug 19, 2022
Which tokens are securities?
- CSA Staff Notice 46-308: Securities Law Implications for Offerings of Tokens provides guidance on the way Canadian securities regulators approach the question of whether any individual token is a security or something else entirely.
- Recent CSA guidance, including Consultation Paper 21-402: Proposed Framework for Crypto-Asset Trading Platforms (“CP 21-402”), has not taken a position on whether any individual crypto asset is a security or otherwise. Instead, securities regulators in Canada have honed in on identifying the means through which a crypto asset is held on a centralized exchange to assert jurisdiction.
See: Alleged US$16 million crypto theft case to test ‘Code is law’ defence in Canada
- CP 21-402 and subsequent CSA Staff Notice 21-327: Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets elaborate on where a Crypto Contract exists, and whether securities laws apply.
- If the crypto asset is immediately delivered to the end user such that the end user is free to use the asset without the involvement or reliance of a CTP, then no Crypto Contract exists. This means that transactions that end in a user-controlled wallet (i.e. browser extension wallets or cold storage wallets where the user maintains their own private keys) independent of the CTP are not Crypto Contracts.
Defining “security” in Canada
- In Canada, securities laws take a “catch and release” approach by providing a wide definition of “security”, but including numerous exceptions based on the policy purposes of enforcing the rules.
- Currently in Canada, crypto assets are generally taxed as commodities.
- Whether a particular asset is a commodity or a security will likely depend on a number of factors, including the ways in which network revenues or fee generation can be attributed to a token (an expectation to profit), whether the mechanism through which validators secure the network is sufficiently decentralized, and whether there is a central third party operating the network and making decisions (depending upon the efforts of third parties).
See: Digital Asset Classification vs Wire Fraud: What’s the Most Powerful Law in Crypto Right Now
- Regulators typically apply the test found in Pacific Coast Coin Exchange of Canada v Ontario (the “Pacific Coast test”):
- an investment of money;
- with an intention or an expectation of profit;
- in a common enterprise in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the
- investment or of third parties; and
- where the efforts made by those other than the investor are undeniably significant, essential managerial efforts which affect the failure or success of the enterprise.
Enforcement action
Two recent decisions of the Ontario Securities Commission’s (the “OSC”) Capital Markets Tribunal (the “Tribunal”) have shown how securities regulators are applying their guidance.
See: OSC Publishes Statement of Allegations Against KuKcoin For Failing to Comply with Ontario Securities Law
The Tribunal reached a settlement agreement including a comprehensive undertaking with Bybit Fintech Limited (“Bybit”), and filed administrative penalties, a cease trade order and a permanent ban on Mek Global Limited and PhoenixFin Pte Ltd (collectively, “KuCoin”) for failing to begin conversations around registration and regulation with the OSC by their stated deadline.
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