Coinbase Raises Concerns: US Restrictions on Stablecoin Rewards May Favor China

Coinbase Warns US "Rewards" Ban Could Let China Win the Stablecoin Race

In a recent warning, Coinbase highlighted that new efforts in Washington to limit how stablecoins can offer rewards to users could jeopardize the United States' position in digital payments. This comes at a time when China is enhancing its state-supported digital currency to make it more appealing to users.

Key Takeaways:

Coinbase's chief policy officer, Faryar Shirzad, expressed concerns that U.S. restrictions on stablecoin rewards could diminish the attractiveness of dollar-backed options on the global market.
China is actively promoting its digital yuan, which is set to include interest payments starting January 1, 2026, posing a threat to U.S. stablecoin market competitiveness.
The GENIUS Act, which established a regulatory framework for U.S. stablecoins, prohibits issuers from paying direct interest while allowing certain rewards.
Traditional banking interests may be pressuring policymakers to re-evaluate existing laws that could benefit U.S. stablecoins.

U.S. Restrictions and Global Competition

Faryar Shirzad, Coinbase's chief policy officer, voiced his concerns on social media, stating that limitations on user rewards could undermine the global appeal of the U.S. dollar-backed stablecoins. As competitive alternatives are emerging, notably from China, this is particularly concerning.

China’s Digital Yuan Initiative

Recently, the People's Bank of China announced a plan for commercial banks to start offering interest on digital yuan wallet balances beginning January 1, 2026. According to Lu Lei, a deputy governor at the PBOC, this adjustment would enable the digital yuan to play a role beyond just a digital cash equivalent, further integrating it with bank operations.

In contrast to China's rapid advancements, the United States has been navigating its own regulatory landscape, marked by the introduction of the GENIUS Act. This legislation established standards for stablecoin reserves and compliance but restricted issuers from directly paying interest, although it still permitted platforms and third parties to provide rewards based on stablecoin usage.

Shirzad expressed concerns that potential amendments during Senate negotiations on broader legislation could further tilt the competitive landscape in favor of foreign stablecoins and central bank digital currencies (CBDCs). Observers in the industry believe that traditional banking institutions are driving calls to revisit these regulations, as banks currently enjoy approximately 4% interest on reserves held at the Federal Reserve and have little motivation to share those yields more broadly.

Stablecoin operators, on the other hand, contend that sharing some of their yield with users through rewards enhances the product's attractiveness.

China Intensifies Digital Yuan Expansion Efforts

Despite prohibiting cryptocurrency trading and domestic stablecoins, China continues to push forward with its CBDC initiative. A new action plan for the years 2026 to 2030 aims to enhance the usage of the digital yuan and develop its supporting infrastructure.

As of November 2025, the e-CNY had facilitated 3.48 billion transactions totaling around 16.7 trillion yuan (approximately $2.34 trillion) across 230 million personal wallets and nearly 19 million corporate wallets. The introduction of interest-bearing digital yuan wallets is seen as a response to long-standing issues regarding user adoption.

The adoption rate of the digital yuan has lagged behind private payment solutions like Alipay and WeChat Pay, which dominate over 90% of China's mobile payments sector. Users have frequently mentioned insufficient incentives and privacy concerns as reasons for preferring established platforms over the state-owned digital yuan despite ongoing pilot initiatives.

Following the latest news, there has been a notable increase in market activities, with Chinese investors investing over $188 million into stocks linked to the digital yuan. However, authorities have cautioned against scams taking advantage of the newly introduced interest feature, indicating the trust challenges still facing this digital currency.

In contrast, the U.S. government has adopted a significantly different stance toward digital currencies. In January, President Donald Trump signed an executive order prohibiting federal entities from establishing or endorsing a central bank digital currency. This move was based on concerns regarding financial stability, individual privacy, and national sovereignty, while showing preference for privately issued, regulated stablecoins as the favored model for a digital dollar.

This ongoing dynamic underscores the importance of how policy decisions in the U.S. may impact the competitive landscape of stablecoins globally, especially as countries like China continue to innovate and enhance their digital currency offerings.