When we add a new cryptocurrency to the Wealthsimple platform, it first needs to go through a detailed review process before approval.
Why? In Canada, regulators govern two types of crypto-asset trading platforms. Market places (exchanges, like Binance or Coinbase) and Dealers (brokers, like Wealthsimple Crypto). Both entity types have regulations that vary slightly but need internal risk controls and mitigation to protect consumers.
As part of Wealthsimple’s Dealer registration status, we are required to have a risk-based listing policy for crypto assets available to trade on our platform and to make this assessment based on certain criteria. We created these criteria to ensure WDA is always prioritizing consumer protection.
More than being a requirement, it’s in the best interests of our clients for us to perform due diligence on any asset we support. This also helps us understand any unique attributes or risks of an asset. This informs the risk disclosures we make available to clients before they trade.
WDA provides customers with access to the crypto assets they want to trade while understanding the associated risks. We assess crypto assets for any legal or regulatory risks or concerns raised by Canadian and foreign regulators.
1. Does the cryptocurrency have a strong technological and economic framework backing it?
Why this is important: The framework considers everything from a token’s supply and how it’s issued to things like what utility it has. The resiliency and use of a project affect the demand and supply of the tokens over time, which affects pricing.
What we look for: We assess its security protocols, economic sustainability, and whether there is support behind delivering its stated roadmap (growth potential).
2. Is the cryptocurrency network decentralized and does it have proven functionality?
Why this is important: Some crypto assets function as governance tokens, meaning holders have voting rights that can influence the project. This helps to achieve decentralization; instead of one group making decisions, token holders can vote on how the platform should run. Concentration risk occurs when a group of individuals disproportionately hold large portions of the total governance token supply, no longer making it decentralized. It is also important that the asset is actually used for its intended purposes, or its value is called into question.
What we look for: One group should not represent the majority stake in the asset and transactions must be verifiable through a public, decentralized network. The asset should also align with the utility of its network.
3. Is there a fair and efficient market for investors to buy and sell the crypto asset? Is this market sustainable?
Why this is important: To achieve market transparency which is the availability of information relating to current opportunities to trade and recently completed trades. Transparency is generally regarded as central to both the fairness and efficiency of a market and in particular to its liquidity and execution price.
What we look for: Consumer demand, market capitalization, asset liquidity, and community support.
4. Can WDA effectively monitor, trade, and custody the crypto asset?
Why this is important: Being able to effectively provide custody of an asset ensures consumers' assets are protected from misappropriation by the dealer member. Effective monitoring and trading also promotes market transparency, leading to fair and efficient markets.
What we look for: The length of time that the global exchange has the asset listed, the transparency and liquidity of the execution price, and the availability of real-time and historical data.
What about stablecoins?
We assess stablecoins using the same criteria listed above, but with one additional consideration:
5. Are there adequate controls in place to maintain stability and value?
Why this is important: It’s important that stablecoins are able to avoid excessive volatility and maintain their utility over the long term.
What we look for: We focus on the transparency, access to information, and auditability of the stablecoin and determine how it is collateralized (reserve assets/algorithmically). We also note how it has performed overtime, whether it has maintained a stable peg, the liquidity and redeemability of the stablecoin, and whether the stablecoin holders are prioritized in the event of insolvency.