A senior Coinbase executive has cautioned that US efforts to limit interest or rewards on dollar-backed stablecoins could unintentionally strengthen foreign competitors, particularly as China advances policies to promote its digital yuan. The comments come amid ongoing debate over the implementation of the GENIUS Act, which bars US payment stablecoin issuers from paying yield directly to holders.
Faryar Shirzad, Coinbase’s chief policy officer, said that prohibiting incentives on US-issued stablecoins risks undermining their appeal relative to overseas alternatives. His remarks followed an announcement by the People’s Bank of China that commercial banks will be permitted to pay interest on holdings of the digital yuan under a framework set to take effect in early 2026.
China’s Digital Yuan Shift
China’s decision marks a notable evolution in its central bank digital currency strategy. The e-CNY has so far seen limited consumer adoption despite extensive pilot programs, functioning largely as a cash-like instrument without yield. Under the new policy, the digital yuan will transition toward a deposit-style instrument, allowing banks to offer interest and potentially making it more attractive to households and businesses.
From a macro perspective, the move reflects Beijing’s broader effort to modernize its payments infrastructure and reduce reliance on private platforms. Allowing interest payments could accelerate adoption while positioning the digital yuan as a competitive settlement tool in cross-border trade and regional payment systems. For global policymakers, it highlights how incentives remain a critical lever in driving digital currency usage.
US Policy Debate and Market Structure
In contrast, the GENIUS Act, enacted in July, was designed to keep US dollar stablecoins focused on payments rather than savings or investment products. While the law clearly prohibits issuers from paying interest, disagreement has emerged over whether certain rewards or incentive structures fall within that ban.
Crypto industry groups argue that a strict interpretation could put US-based stablecoins at a disadvantage compared with foreign-issued tokens and central bank digital currencies. In a recent letter to lawmakers, industry participants contended that there is little evidence that stablecoin rewards pose a systemic threat to community banks or financial stability.
Banking trade groups have taken the opposite view, urging regulators to enforce a broad prohibition on any yield-like incentives. They argue that allowing rewards could blur the line between stablecoins and deposits, potentially diverting funds from the traditional banking system and complicating supervision.
Competitive and Institutional Implications
The dispute underscores a broader tension between financial innovation and incumbent protection. Stablecoins have become a key part of the digital asset market’s infrastructure, increasingly used for payments, settlement, and onchain liquidity. How the US regulates incentives will shape whether dollar-backed stablecoins remain competitive as other jurisdictions experiment with yield-bearing digital money.
For institutional investors and policymakers, the issue goes beyond crypto markets. It touches on currency competitiveness, payment system leadership, and the future role of the US dollar in an increasingly tokenized financial system. As China and other countries refine their digital currency strategies, US regulatory choices could have lasting implications for global financial influence.