Policymakers and crypto advocates are clashing over stablecoin rewards, with growing concern that US inaction could weaken the country’s position against China’s advancing digital currency strategy.
US banks push to restrict stablecoin yield
Traditional US banks, represented by the powerful Bank Policy Institute (BPI), have lobbied since August to curb interest on USD-based stablecoins. They want lawmakers to amend the stablecoin law known as the GENIUS Act, or add limits during ongoing talks on the broader crypto market structure bill.
Their central argument is that attractive on-chain yield could trigger capital flight from bank deposits into stable assets, undermining their capacity to extend credit. Moreover, they warn that reduced deposits could directly hit lending to small businesses and households across the United States.
BPI dismissed claims that these digital dollars are mostly used offshore and pose little domestic risk. Instead, it cautioned lawmakers that any degree of stablecoin adoption could displace deposits, warning the effect would grow if token usage became “pronounced and transformative” over time.
Crypto industry argues competition, not risk
On the other side, crypto industry voices accuse banks of trying to block competition rather than protect financial stability. They note that many leading stablecoins could offer over 3% in yield, while most US banks still provide less than 1% on standard savings accounts.
Supporters insist these digital assets, often used for cross-border payments and trading, are already more common in overseas markets than in US retail banking. That said, they argue this international footprint strengthens demand for dollar-linked tokens and therefore supports US monetary influence abroad.
One prominent advocate recently warned that US stablecoins must remain competitive globally to retain their appeal. According to this view, limiting returns now would hand a clear opening to foreign currencies and non-US digital assets.
From competition to national security framing
As the policy fight escalates, some legal and policy experts are recasting the discussion as a national interest question. One crypto legal specialist argued that incentives on dollar-based tokens now fall under a “national security” umbrella, not just a dispute over an “incumbents seeking regulatory moat”.
He stressed that the GENIUS Act, passed in July, marked a major win for global US dollar dominance. However, he warned that rolling back interest payments on these assets would effectively shift that victory toward rival powers, with China specifically in focus.
Other policy commentators echoed that stance, saying a misstep in Senate negotiations around the crypto market structure bill could give non-US stablecoins and central bank digital currencies, or CBDCs, a crucial advantage at a critical geopolitical moment.
China’s digital yuan adds pressure
The debate sharpened after a Bloomberg report revealed that Chinese commercial banks will begin paying interest on balances held in digital yuan (E-CNY) wallets. According to the report, this change will take effect from the 1st of January, turning the state-backed token into an explicitly interest-bearing instrument.
For US crypto supporters, China’s decision to introduce digital yuan yield confirms that token incentives are now a tool of monetary competition. Moreover, they argue that if Beijing is willing to pay users to adopt its programmable currency, Washington risks falling behind by weakening similar features on dollar-linked assets.
Industry advocates now frequently describe the stablecoin rewards debate as a core issue of “national security”, claiming that decisions taken in 2025 could shape the future hierarchy of digital currencies for years.
Stablecoin rewards in the US market
Despite the pressure from the bank lobby opposition, the US market already hosts several interest-bearing digital dollar products. As of now, Coinbase pays yield on USDC, while PayPal operates its own program that offers returns on PYUSD balances.
These products have grown alongside the broader sector. The overall stablecoin market expanded from $254 billion to $307 billion after the passage of the GENIUS Act in July, underlining the demand for regulated dollar-linked tokens. However, critics say that rising volumes reinforce the potential systemic impact on traditional banks.
In addition to centralized offerings, decentralized finance is also expanding its footprint. Tokens such as Maple’s sUSDS and BlackRock’s BUIDL, both structured as interest-bearing instruments, doubled in size from $6B to over $12B in 2025, highlighting growing appetite for on-chain yield.
Policy crossroads for US stablecoin regulation
The current dispute over stablecoin rewards now sits at the intersection of financial regulation, banking competition, and US foreign policy. Lawmakers must balance concerns over credit creation and deposit stability with the strategic benefits of a dominant, innovative dollar-based digital asset sector.
That said, both sides agree that the outcome of the GENIUS Act debate, and any future genius act amendment, will define how US-linked tokens compete with China’s E-CNY and other global offerings. The next phase of Congressional negotiations will therefore be closely watched by banks, crypto firms, and international policymakers alike.
In summary, rising interest-bearing stablecoins, China’s decision to pay yield on the digital yuan, and persistent banking sector pressure ensure that US policy choices in this area will carry significant economic and geopolitical consequences.
Source: https://en.cryptonomist.ch/2025/12/31/stablecoin-rewards-us-china/
