What Are VCRAs (Value-Referenced Crypto Assets), Better Known as Stablecoins?

Unlock the essentials of VCRAs in this comprehensive guide. Explore how they work, their key benefits for crypto traders, and the popular stablecoin options.?

Understanding Stablecoins as Value-Referenced Crypto Assets in Canada

In Canada, digital assets designed to maintain a stable value are officially referred to as Value-Referenced Crypto Assets (VRCAs) by the Canadian Securities Administrators (CSA). These assets are typically linked to a fiat currency, another asset, or both, and are intended to provide stability in the volatile cryptocurrency market.

While the term "stablecoin" is commonly used in the broader cryptocurrency ecosystem, it's important to note that most VCRAs are pegged to the US dollar (USD). However, this peg doesn't necessarily translate to stability for users in other countries, including Canada, due to fluctuations in currency exchange rates. For instance, the Canadian dollar (CAD) fluctuates against the USD, which means that holding USD-pegged VCRAs can influence the value of one's holdings in CAD terms. Even if a VCRA maintains its 1:1 peg to the USD, its value in CAD can change based on the USD/CAD exchange rate.

This nuance is why the CSA's term, VRCAs, is more accurate for Canadian users. It reflects that these assets reference a value (often the USD) rather than promising absolute stability across different currencies. The CSA has set rules for trading VRCAs to protect investors and maintain market transparency. For example, issuers of certain VRCAs must file commitments and disclose their reserve assets. Circle's USDC was the first VCRA to meet these regulations, allowing it to remain available on registered crypto trading platforms in Canada.

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So, how do VCRAs work, and should you consider using them? This guide will break it all down for you.?

What Is a VCRA?

A VCRA is a type of cryptocurrency whose value is pegged in an asset, such as a fiat currency (like the U.S. dollar), a commodity (like gold), or even another cryptocurrency. By anchoring their value to more predictable assets, VCRAs aim to provide all the benefits of cryptocurrency—speed, security, and transparency—without the dramatic price swings. ?

For example, 1 unit of a fiat-backed VCRA like USDC is typically fixed to 1 U.S. dollar, creating a much-needed "safe zone" for traders, businesses, and everyday users in the crypto world. ??

How Do VCRAs Work?

VCRAs work by providing and reflecting the value of an asset on the blockchain. Typically, VCRAs are pegged to the value of a USD, which means they maintain their stability by helping ensure that an equivalent value in the underlying asset supports each VCRA. In the case of USDC - each USDC token is backed to the value of $1 or or cash-equivalent assets. ?

In such a case, fiat-backed VCRAs operate like IOUs, where the issuer adds collateral in the form of fiat. Issuing VCRAs and repurposing collaterals is done using smart contracts to help ensure stability in the ecosystem. Simply put, VCRAs are backed by real-world assets - in most cases, to help ensure their parity. It's worth noting that while VCRAs strive for price stability, there's no absolute guarantee of maintaining their peg, especially when traded on secondary markets.?

Why Are VCRAs Important?

VCRAs are a form of cryptocurrency introduced as a crucial solution to address the volatility challenges in the crypto market. While many VCRAs, particularly those pegged to the US dollar, aim to maintain a value of $1, it's important to note that not all VCRAs are pegged to the US dollar. Some are pegged to other fiat currencies, commodities, or use algorithmic mechanisms to maintain stability. VCRAs can offer a less volatile medium of exchange compared to traditional cryptocurrencies, helping traders and institutional investors minimize the impact of volatility in the market. Their stability makes them particularly useful for trading, storing value, and facilitating transactions in the crypto ecosystem.?

Even more important is how easily they bridge the gap between traditional and decentralized financial systems. By providing a point of reference to traditional monetary systems, VCRAs can help traders navigate during periods of volatility and market stability.?

Types of VCRAs

VCRAs come in more than one form. As most users only interact with them on the surface, we’ll explain the primary VCRA types and how they work.

Fiat-Pegged VCRAs Fiat-pegged VCRAs are the most commonly used type of VCRA. These cryptocurrencies are tied to traditional fiat currencies, such as the U.S. dollar (USD) or Euro (EUR), and aim to maintain a 1:1 value ratio with the underlying currency.?

To achieve this stability, fiat-pegged VCRAs are backed by reserves of fiat currency or equivalent assets, such as cash or short-term government bonds, held in secured financial institutions. For each issued VCRA, an equivalent amount of collateral is maintained in reserve. Transparency varies across issuers: some, like USDC provide regular third-party audits, while others, like Tether (USDT), have faced criticism for lack of full transparency in their reserve reporting.

Popular fiat-pegged VCRAs include USDC and USDT. These VCRAs are widely used in trading, payments, and decentralized finance (DeFi) due to their price stability and ability to bridge traditional finance with blockchain technology.

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Commodity-Pegged VCRAs Commodity-pegged VCRAs share similarities with fiat-pegged VCRAs but differ in the type of collateral used. These VCRAs are backed by physical assets such as gold, oil, or real estate, providing a tangible basis for their value.

These VCRAs offer investors on-chain exposure to traditional commodities without the need for physical storage or transport. PAX Gold (PAXG) is an example, representing physical gold stored in vaults and allowing users to trade and transfer gold-backed value digitally. Like other VCRAs, they use real-world assets (RWAs) as collateral to mimic the price of the underlying commodity, providing a direct link to its value in the decentralized space.

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Crypto-Backed VCRAs Crypto-backed VCRAs use other cryptocurrencies as collateral to maintain their peg, typically to the US dollar. These VCRAs rely on smart contracts to manage their value on-chain, often employing over-collateralization to account for cryptocurrency volatility. ?

For example, DAI, issued by MakerDAO, uses Ethereum-based assets as collateral. Users lock these assets into smart contracts, called vaults, to mint DAI tokens. This system allows for decentralized issuance and management of the VCRAs. To help ensure stability, crypto-backed VCRAs like DAI often require more collateral than the value of tokens issued. For instance, to obtain $1,000 worth of DAI, a user might need to deposit $2,000 worth of Ethereum, creating a 200% collateralization ratio.

These VCRAs are popular in decentralized finance (DeFi) protocols due to their transparency, as users can verify the collateral backing the tokens on the blockchain. This structure provides a permissionless and decentralized alternative to fiat-backed VCRAs, although it introduces greater complexity and potential smart contract risks.

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Algorithmic VCRAs Algorithmic VCRAs take a different approach to stability by not using physical or digital assets as collateral. Instead, they rely on algorithms and smart contracts to manage the token supply and maintain their value, and these algorithms automatically adjust the supply of stable tokens. Minting mechanics is used to stabilize the token's price depending on market demand.

Some algorithmic VCRAs, like Frax (FRAX), blend partial collateralization with algorithmic controls to help ensure stability. However, purely algorithmic VCRAs, such as the now-defunct TerraUSD (UST), have faced challenges in maintaining stability over time.

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Government-Backed VCRAs Government-backed VCRAs are often associated with central bank digital currencies (CBDCs). By default, they are VCRAs, which are referred to as digital versions of national currencies and operate in a closed banking circuit.

They are deployed using blockchain technology to help modernize traditional monetary systems by adding them on-chain. This aids governments by providing a tamper-proof and transparent system that facilitates faster and more secure payment systems. Most CBDCs exist on private blockchains but still share similarities with regular stables to the extent they maintain their value tied to a national currency. For example, China's Digital Yuan and other developing CBDC initiatives are paving the way for government-backed digital currencies to be integrated into global finance.?

What Are the Benefits of VCRAs?

VCRAs offer far more than reduced price volatility. Here's how they could potentially benefit traders.

• Fast Transactions: Unlike traditional banking systems, VCRA transactions are executed instantly on-chain. This enables near 24/7 transactions across the globe, making it beneficial for time-sensitive payments.
• Global Accessibility: Stablecoins are digitally issued and operate on blockchains, making them accessible to anyone with an internet connection, regardless of location. They offer a new avenue for unbanked populations to participate in both local and global economies.
• Cost Efficiency: By reducing reliance on banks to process cross-border transactions, stablecoins help lower transfer and/or processing fees. As a result, stablecoins could become a preferred payment solution for international payments and much more.
• Transparency and Security: Stablecoins are deployed on large blockchain networks, often offering higher security and transparent and immutable transaction records. As such, they could reduce fraud risks since all transactions become tamper-proof and auditable.
• Ease of Crypto Trading: Stablecoins could act as a haven against volatility for traders. They enable traders to convert funds into a stable pegged currency amidst worry of volatility spikes. It then potentially enables traders to simplify their trading and provide a reliable store of value during market meltdowns.?

What Are the Risks of VCRAs?

Even with the potential promise of price stability, there are risks associated with using VCRAs.

• Centralization Concerns: Most of the used VCRAs are still issues by centralized entities, which contradicts the ethos of decentralization. Reliance on centralized VCRAs creates a significant point of failure and makes the system vulnerable to fund misplacement.
• Reserve Transparency: A lack of transparency in commodity and fiat-backed cryptocurrencies can lead to significant de-pegging. If the reserves are not properly managed, it can erode trust and also lead to insufficient collateral to provide a stable VCRA pegging. As a result, it could lead to total collapse, as seen in the past with TerraUSD.
• De-Pegging Risks: VCRAs are designed to maintain a fixed value (e.g., $1), but extreme market conditions, such as high volatility, lack of liquidity, or technical issues, can cause them to lose their peg. When this happens, users may face potential losses as the VCRA’s value fluctuates unexpectedly. ?
• Regulatory Uncertainty: The growing popularity of VCRAs has drawn increasing scrutiny from governments. Regulatory frameworks are still evolving, and new laws could impose restrictions on their use, require issuers to meet stringent compliance standards, or even outright ban certain VCRAs. This uncertainty creates risks for both users and issuers. ??

Examples of Popular VCRAs

Here are some of the most popular and used VCRA on the market.

USDT (Tether) ? Tether (USDT) is the most common and widely traded VCRA on the market. It's ranked among the Top 5 cryptocurrencies and is pegged to the value of a USD. Tether has faced criticism due to sudden de-pegging and fears that Teher is not only pegged to USD but other collaterals such as bonds and stocks. ?

USDC (USD Coin) USDC, or USDC, is an Ethereum and multichain alternative to the US dollar. It offers a stable and transparent VCRAand stands out for its reliability and reputation. USDC is ranked among the top 10 cryptocurrencies by market capitalization and operates on more than one blockchain network.

DAI ? DAI takes a different approach from centralized VCRAs like USDT and USDC. It is fully decentralized, using smart contracts and collateralized assets to maintain its value. Unlike USDT and USDC, DAI isn't controlled or governed by any centralized entity and appeals to crypto users who value decentralization and a trustless system.?

The Future of VCRAs

The VCRA market is evolving rapidly as regulators, financial institutions, and crypto users recognize its potential. Regulatory frameworks are being developed worldwide to address concerns about reserve management and financial transparency. The VCRA supply has grown significantly, reaching $211.2 billion in circulation in early 2025, indicating increased liquidity in the crypto sector. Although growth isn't guaranteed, it is projected to continue, with estimates suggesting the VCRA supply could reach over $400 billion by the end of 2025, possibly having a significant impact on the crypto market.?

Frequently Asked Questions

Is Bitcoin a VCRA? ? No. Bitcoin is not a VCRA. Bitcoin and stablecoins serve distinct roles within the blockchain industry. Price wise, bitcoin's price can experience large swings from shifts in investor confidence and/or changes in the overall demand for the asset. Stablecoins are designed to minimize price fluctuations while providing the benefits of digital currencies for users and investors.

How Does a VCRA Make Money? ? VCRA issuers often profit through fees and interest on reserves.?

Final Thoughts

VCRAs are providing a necessary bridge between traditional finance and the crypto space. As markets become more volatile, VCRAs can potentially provide stability and convenience for traders, opening the doors for innovative applications that can help increase the adoption of digital assets.?

If you are a Canadian resident and are looking to buy VCRAs like?USDC?or trade a range of cryptocurrencies, then you can do so at?Ndax.

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Further Readings

• How to Buy USDC (USDC) - A Step-by-Step Guide?

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Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.