Crypto News: Coinbase Warns U.S. Stablecoin Interests Ban Hands China an Edge

Key Insights:

• In the latest crypto news, Coinbase Exchange has warned about the underlying risk of restricting yield on dollar-backed stablecoins.
• The chief policy officer at Coinbase, Faryar Shirzad said the United States risks losing dominance to countries like China which are already enforcing interest on digital yuan holdings.
• The GENIUS Act, passed in July, prohibits U.S. dollar payment stablecoins from paying interest or yield directly to holders.

In the latest crypto news, Coinbase Exchange has warned about the underlying risk of restricting yield on dollar-backed stablecoins and noted that  U.S. lawmakers might end up giving competitors an edge.

The chief policy officer at Coinbase, Faryar Shirzad, sounded the alarm on Tuesday through X where he stated that the GENIUS Act, which governs U.S. stablecoins, must be carefully implemented to avoid ceding ground to foreign digital money initiatives.

His warning comes just as Coinrepublic reported about China’s newest central bank digital currency framework that aims to pay interest on digital yuan holdings.

The chief policy office stressed that tokenization represents the future of money. He described the GENIUS Act as a visionary step by Congress and the President to make U.S. dollar stablecoins the dominant settlement tool of tomorrow.

He cautioned that mishandling the rules around stablecoin rewards during Senate negotiations could give global rivals “a big assist.” Non-U.S. stablecoins and central bank digital currencies (CBDCs) could gain a meaningful advantage if U.S. rules are too restrictive.

The GENIUS Act will make U.S. dollar-backed stablecoins hold all their reserves in liquid assets, such as dollars or Treasury bills. Issuers must report their reserves every month. The law applies to the two largest stablecoins, Tether’s USDT and Circle’s USDC, which together make up a $217 billion market that has long sought clear rules to attract institutional investors.

Despite the rise of stablecoins, banks still rely on Nostro and Vostro accounts—pre-funded fiat accounts at correspondent banks—to settle cross-border payments. These accounts currently hold around $27 trillion worldwide and could grow past $50 trillion as banks remain cautious about using each other’s stablecoins or central bank digital currencies.

Shirzad’s comments coincide with China preparing a major push for its digital yuan, or e-CNY. The currency has struggled to gain widespread consumer adoption despite years of pilot programs.

People’s Bank of China recently announced that commercial banks will soon be allowed to pay interest on clients’ digital yuan holdings. The new framework is set to take effect on January 1, 2026.

Under the new policy, the e-CNY will move from functioning like digital cash to a “digital deposit currency,” according to PBOC Deputy Governor Lu Lei.

The U.S. Debate on Stablecoin Rewards

The GENIUS Act, passed in July 2025, prohibits U.S. dollar payment stablecoins from paying interest or yield directly to holders. The goal is to keep stablecoins focused on payments rather than investment.

Crypto companies argue that overly strict enforcement could make U.S. stablecoins less competitive compared to foreign alternatives and CBDCs. Banking groups, meanwhile, push for a broad prohibition to protect traditional financial models.

On December 18, the Blockchain Association and over 125 crypto industry participants urged Congress not to expand the GENIUS Act’s ban on rewards. They said claims that yield-bearing stablecoins threaten community banks are not backed by evidence.

At the same time, the American Bankers Association urged lawmakers to strictly enforce the ban. The group warned that some crypto exchanges are offering reward-like incentives in ways that could undermine traditional banking activity.