Coinbase Says Stablecoin Interest Ban Gives China the Advantage

Ben Graham · January 2

Coinbase is pushing back against efforts to limit interest on stablecoins in the United States, warning that such restrictions could end up helping China. The warning comes as lawmakers debate how to enforce the GENIUS Act, which became law in July and introduced a new set of rules for stablecoins. The timing is especially important, with China getting ready to let users earn interest on its own digital currency starting early next year.

How U.S. Stablecoin Interest Rules Are Taking Shape

Currently, the law prohibits stablecoin issuers in the U.S. from paying interest directly to users. However, some platforms have been offering rewards through workarounds that allow users to earn yield without violating the exact wording of the rule.

Banking groups are calling for regulators to shut those options down too, arguing that any kind of reward linked to stablecoins could pull money out of banks and shake up the traditional system.

Crypto firms are pushing back, saying this goes further than what lawmakers originally intended and risks cutting off innovation that helps the space grow.

Why Coinbase Worries About the Bigger Picture

Coinbase’s policy team says that if the U.S. keeps tightening the rules around stablecoin rewards, people and businesses might just take their money elsewhere. China’s central bank is preparing to offer interest on its digital yuan starting January 2026.

That kind of return could make the digital yuan more attractive for both payments and long-term holding compared to U.S. stablecoins that don’t offer any yield at all. Coinbase believes this could weaken the appeal of dollar-backed tokens globally and make it harder for the U.S. to maintain its influence in the fast-evolving world of digital money.

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Banks Want Tight Enforcement

On the other side of the argument, major banking groups are telling regulators to crack down on any stablecoin product that even resembles a savings account. They say interest-bearing tokens could trigger large withdrawals from traditional banks and create risks for the broader financial system.

Their position is that stablecoins should only be used as payment tools, not as investments, and that any loopholes allowing yield should be closed before they grow into a bigger problem.

How the Market Could Be Affected

If regulators decide to block all forms of yield on stablecoins, platforms that currently offer rewards may have to stop or change how they operate. That could make U.S. stablecoins less competitive, especially as other countries move ahead with digital currencies that offer more incentives.

Coinbase and others argue that some type of reward system is important for keeping dollar-based stablecoins relevant and appealing to users. Without it, they risk losing ground to foreign alternatives that come with better returns.

You can’t handicap your own builders and expect to stay ahead.
If China allows yield and the U.S. doesn’t, the competitive gap becomes obvious fast.

— ATEG Capital (@Ateg_Capital) December 31, 2025

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What Comes Next for Lawmakers and Industry

The debate around stablecoin interest is part of a larger conversation about crypto regulation in the U.S. As Congress works through broader bills covering digital assets, it is expected to keep this issue in focus.

Lawmakers and regulators face growing pressure to strike a middle ground between protecting financial stability and remaining competitive in the digital economy. Meanwhile, platforms and investors are closely watching how regulators implement the GENIUS Act and what it will mean for stablecoin use going forward.

The decision over whether or not to allow stablecoin rewards may seem narrow, but it could play a big role in shaping how the U.S. competes in global finance. With other nations ready to offer better terms on their own digital currencies, what happens next could have long-term consequences for the role of the dollar in a more digital world.

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Key Takeaways

Coinbase has warned that banning interest on U.S. stablecoins could weaken America’s position in global digital finance
The debate centers on the GENIUS Act, which restricts stablecoin issuers from paying interest directly to holders
Banking groups are pushing regulators to block all forms of stablecoin yield, including indirect reward structures
China plans to allow interest on its digital yuan starting in January 2026, which Coinbase says could attract global users
A full interest ban could push users and innovation away from U.S. platforms toward foreign digital currencies

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