Nikolas Sargeant
A senior Coinbase executive has warned that proposed changes to US stablecoin legislation could undermine Washington's position in the global digital payments race, as China moves to enhance its central bank digital currency by allowing interest-bearing wallets starting January 2026.
Faryar Shirzad, Coinbase's chief policy officer, stated in an X post that debate over whether US-issued stablecoins can offer "rewards" under the GENIUS Act could damage dollar-denominated stablecoins' global competitiveness. He pointed to a recent announcement from China's central bank as evidence that rival financial systems are rapidly enhancing the appeal of state-backed digital money.
The People's Bank of China outlined a framework this week that will permit commercial banks to pay interest on balances held in digital yuan wallets beginning January 1, 2026. Lu Lei, a deputy governor at the PBOC, said the change would move the e-CNY beyond its original role as a digital cash substitute and integrate it into banks' asset and liability management systems.
"The digital RMB will move from the digital cash era to the digital deposit currency (Digital Deposit Money) era," Lei stated in the announcement. "It has the functions of monetary value scale, value storage, and cross-border payment," expanding the digital yuan's utility beyond simple transaction settlement.
The GENIUS Act, which passed in June, established reserve and compliance rules for stablecoins while prohibiting issuers from paying direct interest to holders. The law, however, allows platforms and third parties to offer rewards linked to stablecoin use, creating a regulatory distinction between issuer-paid interest and third-party rewards programs.
"If this issue is mishandled in Senate negotiations on the market structure bill it could hand our global rivals a big assist in giving non-US stablecoins and CBDCs a critical competitive advantage at the worst possible time," Shirzad warned, suggesting timing is crucial as digital payment systems compete globally.
The warning arrives as industry figures express concerns about bank lobbyists attempting to reopen provisions of the GENIUS Act. "Now the banking lobby wants to reopen it," crypto policy commentator Max Avery stated in a post last week, highlighting friction between traditional banking interests and cryptocurrency platforms.
Avery observed that while banks currently earn approximately 4% on reserves parked at the Federal Reserve, consumers often receive near-zero interest on traditional savings accounts. Stablecoin platforms, he argued, threaten that model by offering to share portions of that yield with users, potentially disrupting banks' deposit-based business models.
Last week, Coinbase CEO Brian Armstrong stated any attempt to reopen the GENIUS Act would cross a "red line," accusing banks of lobbying Congress to limit stablecoin rewards in order to protect their deposit base. He said Coinbase would continue opposing efforts to revise the law, adding he was surprised such lobbying was occurring so openly.
Armstrong also argued banks are misjudging the issue, predicting they will eventually seek to offer interest and yield on stablecoins themselves once the business opportunity becomes apparent. He described the current lobbying effort as "unethical," stating it would ultimately fail as market forces drive adoption of yield-bearing digital dollar products.
The debate reflects tension between maintaining US dollar dominance in digital payments and protecting traditional banking models that rely on deposit float—the difference between interest banks earn on reserves and rates they pay depositors. Stablecoins threaten this spread by enabling more efficient pass-through of yields to holders.
China's move to enable interest-bearing digital yuan wallets represents a strategic shift in CBDC design. Most central bank digital currencies, including China's initial e-CNY implementation, have functioned as digital cash equivalents without interest, distinguishing them from bank deposits. Adding interest capability makes the digital yuan more competitive with both traditional bank deposits and cryptocurrency-based alternatives.
The competitive dynamic has implications for cross-border payments and international reserve currency status. If non-US digital currencies offer attractive yields while dollar stablecoins face restrictions, it could accelerate diversification away from dollar-denominated assets in international commerce and finance.
The $310 billion stablecoin market has become a significant factor in cryptocurrency adoption, with dollar-denominated stablecoins like USDT and USDC serving as primary trading pairs and settlement currencies across global crypto markets. Regulatory decisions affecting their competitiveness could influence whether the dollar maintains dominance in emerging digital payment systems.
