A high-stakes warning from a senior Coinbase executive has cast a shadow over Washington’s digital payment strategy, suggesting that a legislative "misstep" could inadvertently strengthen foreign rivals. Faryar Shirzad, Coinbase’s Chief Policy Officer, argues that the ongoing debate regarding "rewards" within the GENIUS Act threatens to undermine the global dominance of the U.S. dollar. This warning arrives at a critical juncture as the People’s Bank of China (PBOC) prepares to transition the digital yuan into a "digital deposit" era, effectively allowing commercial banks to pay interest on e-CNY holdings starting January 1, 2026. If U.S. policymakers succumb to banking lobby pressures to restrict yield-sharing on stablecoins, they may grant a decisive competitive advantage to overseas digital currencies at a moment when digital dollarization is under intense global scrutiny.

• US policymakers are navigating a thin line between protecting traditional banking deposits and ensuring the dollar remains the world's premier digital settlement tool.
• Learn how China's latest central bank move aims to transform its digital currency from a cash substitute into a yield-bearing asset.
• Discover why the internal battle over the GENIUS Act has become a "red line" issue for major crypto industry leaders.

The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS Act), signed into law in July 2025, was initially hailed as a landmark victory for regulatory clarity. It established a rigorous framework for reserves and compliance, effectively barring stablecoin issuers from paying interest directly to users. However, a significant "safe harbor" remained: platforms and third parties were permitted to offer "rewards" to users, a mechanism that has allowed the stablecoin market to remain competitive against high-yield traditional accounts.

This delicate balance is now being challenged by a powerful banking lobby. Industry insiders report that banks are pressuring the Senate to reopen the GENIUS Act to close these reward "loopholes." Critics argue that while banks currently earn approximately 4% on reserves parked at the Federal Reserve, they continue to offer near-zero interest to their own depositors. Stablecoin platforms threaten this legacy model by sharing a portion of their reserve yields with the public. Brian Armstrong, CEO of Coinbase, has labeled these lobbying efforts as "unethical," warning that any attempt to stifle these rewards would be a direct assault on the future of American financial innovation.

While Washington remains embroiled in internal debates, the People’s Bank of China (PBOC) is moving with surgical precision. Deputy Governor Lu Lei recently outlined an action plan that shifts the e-CNY from a "digital cash" (M0) model to a "digital deposit money" (M1) model. By allowing banks to integrate digital yuan into their asset and liability management, China is creating an interest-bearing CBDC that functions as a sophisticated store of value and cross-border payment tool.

This structural shift is designed to incentivize mass adoption. Starting in early 2026, real-name digital yuan wallets will be covered by deposit insurance and managed similarly to traditional bank deposits. This makes the e-CNY a formidable rival to non-interest-bearing US dollar stablecoins. Faryar Shirzad emphasized that "incentives matter," and if the U.S. limits the utility and yield of its own digital assets, it effectively hands a "big assist" to global rivals.

For Coinbase, the integrity of the GENIUS Act is a non-negotiable "red line." The company has joined a coalition of over 125 crypto firms to oppose any Senate amendments that would curb the ability of third-party platforms to provide rewards. They argue that banks are miscalculating the situation, predicting that traditional lenders will eventually want to offer these same yields themselves once they realize the scope of the opportunity.

This legislative friction mirrors other global regulatory shifts, such as Japan’s recent reclassification of crypto as financial products and the FDIC’s proposed guidance on tokenized deposit insurance, both of which seek to integrate digital assets rather than restrict them. As the Senate continues negotiations on the broader market structure bill, the decision on stablecoin rewards will likely determine whether the U.S. dollar maintains its digital dominance or cedes its global edge to a more aggressive, interest-bearing competitor in the East.

Quotes and Expert Opinions

“The digital RMB will move from the digital cash era to the digital deposit currency (Digital Deposit Money) era. It has the functions of monetary value scale, value storage, and cross-border payment.” — Lu Lei, Deputy Governor of the People's Bank of China (PBOC)

“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.” — Faryar Shirzad, Chief Policy Officer at Coinbase - Source

FAQs

What is the main concern Coinbase has regarding the GENIUS Act?
The main concern is that banking lobbyists are trying to reopen the GENIUS Act to restrict "rewards" offered by third-party platforms. Coinbase warns this would make U.S. stablecoins less competitive compared to foreign digital currencies that offer yield.

How is China changing its digital yuan (e-CNY) in 2026?
China is upgrading the digital yuan to a "digital deposit money" model. This means that starting January 1, 2026, commercial banks will be allowed to pay interest on e-CNY wallet balances, treating them like traditional bank deposits.

Why are banks lobbying against stablecoin rewards?
Banks are concerned that stablecoin platforms, which often share yield from their reserves with users, could pull trillions in deposits away from traditional banking accounts that typically pay much lower interest.

What does Brian Armstrong mean by a "red line" issue?
By calling the GENIUS Act a "red line," the Coinbase CEO signifies that the company will not accept any legislative changes that reduce the competitiveness or rewards functionality of regulated U.S. stablecoins.

Does the GENIUS Act currently allow stablecoins to pay interest?
The GENIUS Act prohibits stablecoin issuers from paying direct interest on the tokens. However, it specifically allows platforms and third parties to offer rewards and incentives to users.