I see it as a win as a consumer and a win as a developer.
May I suggest you simply add a banner ad to the game, and then provide a single IAP to remove the banner ad, for players who don't like them? I hate banner ads, so if it's a good game I'll gladly pay a few dollars to kill the ads (and if it's bad game, well, I won't be playing anyway so it doesn't matter what you do).
Don't forget that the only players you're getting feedback from are the ones that currently are engaged with your system. You aren't getting feedback from any of the players that skipped your app in the first place due to the IAP/incentivized coin system. Personally, if I know a game has that sort of system, I will be far less likely to even give it a chance first.
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Edit: Another suggestion, which I've seen used in games before, is to keep the coin system, but remove all the incentivized coin stuff (no videos, etc). Then provide a way to earn coins through gameplay. And finally, provide an IAP to increase the rate at which you earn coins in-game. If you tune it correctly, the base "free" game could drop coins at a low-enough rate to still encourage players to seek alternate ways to gain coins, but the coin-booster IAP would then increase the rate to a level at which most players are comfortable playing without buying any more coins through IAP. Then finally, you can still offer coins through IAP for those few players that want them anyway.
Of course, you have to be careful with this approach, because if you don't calibrate it right and people who bought the coin-booster still feel like they aren't getting enough coins to reasonably play the game, then they'll be angry. And if you give too many coins, there will be no incentive at all for anyone to buy IAP. But this just means you have to put enough thought into it to design it correctly
As an example of this approach, Ski Safari Adventure Time uses it (and I assume the original Ski Safari as well but I never played that). Coins are used to purchase in-game upgrades, and they're collected through gameplay, but you can buy a one-time coin booster that doubles the coins you get through gameplay. Personally, I like this approach because it means I can feel like I paid for the game, and it makes the game playable without having to resort to non-gameplay mechanisms to acquire the needed coins. It's also better than the ad approach because not only does it mean you don't have to uglify your UI with ad banners (and don't have to design a UI that can afford to give up that screen space), but buying a coin-booster like this also feels like the user is gaining a reward, as opposed to getting rid of ads which feels like the user is paying a tax, if you will.
"Buy a theme. No game play advantage but it gives us cash"? I'd be interested to see how well that pays. (I do agree with you though - many IAPs are awful and force the game designer to break their game so they can sell and IAP to fix it).
Who buys consumable IAP to support app authors anyway? I've never heard of that. Buying single-use IAP like ad-removal or coin-boosting, yeah, people do that to support the authors (I'll do that if I think it's a game I'm actually going to play). But that really only applies to single-time purchases, not consumables.
And yeah, you can add cosmetic stuff like themes, or character costumes, or other non-gameplay-affecting things. That's a decent way to provide an opportunity for people to give you money without making them feel like they have to pay to play (you can even make this stuff cost coins, but set the price a bit high to encourage people to use IAP to afford it (but no so high that people think it's unobtainable without IAP), or have a few "special" items that are IAP-only).
Basically, the best approach IMO is to have virtual currency (coins), that you can earn through gameplay, or purchase with IAP. These coins are used to buy things that are perhaps purely aesthetic, or nice-to-have, but are not required in any sense for actual gameplay, or to be able to get a good high score when competing with friends. For example, in a Ski Safari-style game, you might purchase boosters that deposit you partway into the level; you could certainly get that far on your own, so it doesn't affect your high score, but it skips past the "boring" speed ramp-up and so gets you into the action a bit faster. And since these are purchased with coins instead of directly with IAP, people can still play around with them without spending money, which of course provides a way to use up coins and therefore encourage them to buy more.
Once you have these coins, I would then recommend a single permanent IAP purchase for some form of coin booster, as I suggested before. This provides the easy option for someone who wants to support the game author (and therefore feel like they paid for the game), while at the same time giving them a permanent reward for doing so. Not only that, but because it's a permanent reward that they just spent money for, it then becomes a sunk cost if they stop playing the game, and so it's a subtle encouragement to keep coming back to the game, to make sure they got their money's worth. This works the same way as when paying for a game outright, of course, but the alternative, of just relying on consumable IAP, does not have this property because, of course, once they use up what they bought, they've already extracted all the value they could from the purchase.
Finally, I would suggest avoiding ads if you can get away with not having them. Ads are tacky and ugly and will cause a lot of people (myself included) to not even put in the time to find out if the game is any good. But if you decide you need ads anyway, make the coin booster also disable ads at the same time.
Also, as I said above, a coin booster IAP like this seems more like $2.99-$4.99, not $0.99. The nice thing about having it be IAP instead of an upfront cost is that once people decide they like a game, they're more willing to pay more than a dollar for it. The $0.99 price for a lot of games is like that because people have to pay upfront, and it's hard to convince someone to pay more money when they can just go buy a cheaper game. But once they've already decided they like a game, it's easier to justify the higher price.
Reasons
3.10: Developers who attempt to manipulate or cheat the user reviews or chart ranking in the App Store with fake or paid reviews, or any other inappropriate methods will be removed from the iOS Developer Program 3.10
We found that your app, or its metadata, includes features or content that can have an excessive influence in the listing order or ranking on the App Store, which is not in compliance with the App Store Review Guidelines.
Specifically, we found your app provides users coins for watching a video or trailer and subscribing a third party service. It would be appropriate to remove this information.
Please refer to the attached screenshot for more information.
While your iTunes Connect Application State is Rejected, a new binary will be required. Make the desired metadata changes when you upload the new binary.
It doesn't increase downloads unless the app in the video looks decent enough to interest a user, and that seems like it increases app discoverability - something I think Apple would actually want.
I'm not knocking you BTW - the market will bear what it will bear - but, wow I had no idea this was a thing.
Arcade games holding my progress to ransom was "accepted" in the 80s and 90s. Fast forward to today and watching a video for 30 seconds to gain more credits is unacceptable?
I see that you report your advertisers are aware, but if Apple chooses this for the ads they manage then I am not surprised they would enforce it universally so that developers don't move away from iADs.