US Banks’ Push to Ban Stablecoin Rewards Could Cede Edge to China
US crypto executives warn that efforts by US banks and some lawmakers to extend a ban on interest or rewards for stablecoins risk handing a competitive advantage to China. Coinbase CPO Faryar Shirzad told Congress that banning stablecoin rewards would undermine the GENIUS Act’s goal of making US-regulated dollar stablecoins the dominant global settlement instrument. The People’s Bank of China plans to pay interest on its digital yuan (e-CNY) starting January 1, 2026, giving China a potential yield-bearing digital-payments edge. Coinbase CEO Brian Armstrong and Variant CLO Jake Chervinsky echoed concerns, calling the issue one of national security and dollar primacy. Banking associations have lobbied the Senate to expand the current prohibition (which targets issuers) to include exchanges, brokers and affiliates, arguing interest could distort markets and credit creation. Crypto advocates counter that an expanded ban would stifle competitiveness for USD-pegged tokens and could be circumvented. The dispute centers on market structure amendments to the GENIUS Act and could influence regulatory outcomes that shape stablecoin adoption, competition between US and non-US stablecoins, and the broader strategic positioning of central bank digital currencies (CBDCs).
Bearish
The news likely exerts bearish pressure on US-listed stablecoin-related projects and could introduce broader market uncertainty. If US legislation is amended to forbid rewards on stablecoins across issuers and intermediaries, USD-pegged stablecoins would become less competitive relative to yield-bearing alternatives (including foreign stablecoins and CBDCs like China’s e-CNY). Traders may reduce allocations to US stablecoin products and related layer projects, lowering on-chain liquidity and trading volumes for USD stablecoins. Short-term effects: volatility could increase as market participants reprice regulatory risk and move funds to non-US venues or yield-bearing CBDCs; temporary outflows from US stablecoins could depress demand for dollar-pegged assets. Long-term effects: sustained regulatory constraints could slow adoption of US-regulated stablecoins, ceding settlement and on-chain payment primacy to foreign stablecoins or CBDCs, which may gradually shift institutional onboarding and settlement flows away from US platforms. Historical parallels: regulatory-driven competitive shifts (e.g., stricter DeFi restrictions or exchange crackdowns) previously caused liquidity migration and price volatility in crypto markets. Overall, the announcement increases policy risk and lowers confidence in the US stablecoin landscape, producing a net negative (bearish) outlook for assets directly tied to US stablecoin utility and adoption.