SS #61 - China Transforms Digital Yuan Into Interest Bearing Deposit Currency

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Good morning!

As we head into the final week of 2025, a major shift from China is set to redefine the central bank digital currency landscape for the year ahead. Starting January 1, 2026, the People’s Bank of China will overhaul its e-CNY framework to allow commercial banks to pay interest on holdings, effectively transitioning the digital yuan from "digital cash" to a yield-bearing "digital deposit currency." This move marks a pivotal moment in the project’s decade-long history, signaling a new strategy to drive mass adoption by integrating the CBDC directly into the traditional interest-bearing banking system.

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In Today's Edition:

• Headline: China Transforms Digital Yuan Into Interest Bearing Deposit Currency

• Quick Bites: Circle Confirms Platform Promising Tokenized Gold, Silver Swaps Is ‘Fake’

• Yield of the Week: 414.93% APY on Euler

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HEADLINE

China Transforms Digital Yuan Into Interest Bearing Deposit Currency

State of play: China is overhauling its digital yuan (e-CNY) framework to allow commercial banks to pay interest on holdings starting January 1, 2026, effectively transitioning the CBDC from digital cash to a "digital deposit currency."

• For the first time, e-CNY wallets will earn interest and fall under China’s national deposit insurance system.

• Banks gain flexibility to manage e-CNY as part of their asset-liability operations, while non-bank payment institutions maintain a 100% reserve requirement.

• Despite reaching $2.38T in cumulative transactions by late 2025, the e-CNY still struggles to displace dominant private platforms like Alipay and WeChat Pay.

What’s Next: Expect Chinese commercial banks to launch aggressive "yield-grab" campaigns to boost adoption, alongside a surge in cross-border pilots with Singapore and the UAE to stress-test the e-CNY’s international settlement capabilities.

Why it Matters: By adding interest, China removes the "opportunity cost" of holding CBDCs over private bank deposits. This positions the e-CNY as a sovereign, yield-bearing competitor to USD-pegged stablecoins in global trade.

Our Take: The PBOC is pivoting from "utility" to "incentive" to rescue stagnant adoption. While this strengthens the yuan's digital infrastructure, it reinforces a centralized, permissioned alternative to the open crypto ecosystem. A direct challenge to DeFi in the region.

QUICK BITES

• Circle confirms platform promising tokenized gold, silver swaps is 'fake’.

YIELD OF THE WEEK

Euler Liquidity Hub BOLD/USDC: 35.85%-414.93% APY

• The Euler strategy allows users to open directional positions by either depositing BOLD to borrow USDC or longing BOLD against a USDC short.

• Users can access up to 13.31x leverage with a Loan-to-Value (LTV) ratio reaching 92.5%.

• The Liquidation Loan-to-Value (LLTV) threshold is set at 95%, with approximately $312K in available liquidity for the strategy.

Euler Euler Prime RLUSD/USDC: 7.92%-33.55% APY

• The Euler strategy allows users to open directional positions by either depositing RLUSD to borrow USDC or longing RLUSD against a USDC short.

• Users can access up to 14.27x leverage with a Loan-to-Value (LTV) ratio reaching 93%.

• The Liquidation Loan-to-Value (LLTV) threshold is set at 95%, with approximately $635K in available liquidity for the strategy.

Euler Euler Prime RLUSD/USDT: 7.92%-40.67% APY

• The Euler strategy allows users to open directional positions by either depositing RLUSD to borrow USDT or longing RLUSD against a USDT short.

• Users can access up to 14.27x leverage with a Loan-to-Value (LTV) ratio reaching 93%.

• The Liquidation Loan-to-Value (LLTV) threshold is set at 95%, with approximately $509K in available liquidity for the strategy.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.