Original author: Attorney Zhao Xuan

introduction

Recently, many friends have been asking: What exactly has been upgraded in Digital Yuan 2.0? Will it affect our crypto assets?

However, if we only focus on the digital yuan, it is easy to miss another more crucial clue – the clear statement made by regulators on stablecoins on November 28 is simultaneously reshaping the legal boundaries of the entire digital currency.

These two issues are not contradictory. If we place them under the same regulatory logic, we will find that one is clarifying what can no longer be done, while the other is telling the market what is permitted.

This article doesn't aim to simply judge whether it's "good news" or "bad news," but rather to clarify three things in light of the simultaneous occurrence of the November 28th meeting and Digital Yuan 2.0:

How far has the regulation of stablecoins in mainland China actually progressed?
What financial logic does Digital Yuan 2.0 truly change?
Now that the red lines for illegal financial activities have been clearly drawn, what paths can Web3 practitioners choose?

"Cold and Hot" at the End of 2025

As 2025 draws to a close, China's Web3 industry stands at a crucial juncture. While Hong Kong, moving southward, is steadily advancing its stablecoin institutional experiment within a legal framework, what's happening on the mainland is not exploration, but a reaffirmation of boundaries. Within just one month, industry professionals have clearly felt a more explicit and rigid regulatory paradigm taking shape.

On the one hand, industry expectations cooled rapidly: On November 28, the People's Bank of China and other departments made a clear regulatory definition of "stablecoins" at a meeting of the coordination mechanism for anti-money laundering risks and beneficial ownership management. Previously, the market had hoped that "Hong Kong legislation might force a fine-tuning of mainland policies," but after the red line of "illegal financial activities" was reiterated, this optimistic judgment was quickly corrected—the regulatory attitude has not loosened, but has become clearer.

On the other hand, policy signals are also heating up: at the end of December, digital yuan 2.0 was officially launched. According to currently disclosed information, the new phase of digital yuan has been upgraded from a simple "digital cash" form to a "digital deposit currency" that supports interest calculation, complex smart contracts, and has the attributes of commercial bank liabilities. Its institutional positioning and application boundaries have been significantly advanced.

Amidst the coexistence of both cooling and heating policies, the regulatory intent has shifted from implicit to explicit. This is not a random policy combination, but rather an orderly "restructuring" – by continuously clearing out stablecoins issued by non-public entities, a clear and controllable market space is being created for the officially led digital currency system.

The "old wine" in "new bottles" of regulatory logic

Many people are trying to find new regulatory rules when interpreting the regulations issued on November 28, 2025. However, we believe that this is just a reiteration of the "September 24 Notice" of 2021.

1. The Vanishing "Splash": The Market Has Already Developed Antibodies

One of the most direct indicators is that when the "9.24 Notice" was issued in 2021, BTC immediately plummeted, and the industry was in dire straits; but after this meeting in 2025, the market didn't even show a ripple. This market indifference stems from the repetition of logic.

Four years ago, regulators clearly defined Tether (USDT) as an illegal virtual currency. Even though this meeting highlighted the point that "stablecoins also belong to virtual currencies," it doesn't add any new legal basis to the matter.

2. A Judicial "Turning Back": From Warmth to Coldness

The real game-changer of this meeting wasn't in the "definition" of the issue, but in the forced reversal of judicial direction. We need to observe a subtle shift in the judicial landscape:

2021-2022: All currency-related contracts are invalid, and the risk is borne by the party involved; the courts will generally not provide relief.
2023-early 2025: Judges began to understand Web3 and no longer simply dismissed everything on the grounds of "public order and good morals." In civil disputes involving the purchase of virtual currency with real money, some courts began to rule that "the legal tender should be returned proportionally."
Late 2025 (after November 28): The harsh winter returns. This meeting sent a clear signal, requiring judicial adjudication to align with administrative supervision. That is, for Web3 civil disputes, an invalid contract is invalid, and the risk is borne by the individual.

3. The true anchor of regulation: plugging the "underground channels" of foreign exchange.

Why is the government reiterating the "old rules" at this time? Because stablecoins have touched the most sensitive nerve—foreign exchange controls. USDT and USDC have now transformed from Web3 trading tools into "parallel highways" for large-scale capital outflows. From tuition fees for children's overseas studies to complex money laundering chains, stablecoins have effectively dismantled the $50,000 annual quota limit per person.

The meeting on November 28th was not essentially about technology, but rather about foreign exchange issues. The regulators reiterated this point because they found that even with stringent controls, loopholes remained in the foreign exchange control system due to the instant settlement nature of stablecoins.

4. Prudent Risks and Outlook

It's important to recognize that under the current regulatory approach, security is placed as an absolute priority. This helps to quickly control risks, but it may also have a real impact: in the short term, there will be a certain degree of disconnect between the domestic financial system and the programmable financial system that is being promoted globally, thereby reducing the space for institutional exploration in the public blockchain environment.

Digital Yuan: From the Exploration of 1.0 to the "Logical Restructuring" of 2.0

Why is it necessary to define stablecoins at this point in time?

Because the digital yuan 2.0 carries the mission of "incorporating technological logic into the sovereign framework".

In the era of Digital Yuan 1.0: From the user side, as M0 (cash) with no interest, it was difficult to compete with highly mature third-party payment tools in the existing market. From the bank side, commercial banks in the 1.0 era only acted as "distribution windows," bearing heavy costs of anti-money laundering and system maintenance, but could not generate loans or earn interest spreads through Digital Yuan, lacking an inherent commercial driving force.

In the era of Digital Yuan 2.0, based on current promotional materials, we see the following changes: In terms of attributes, it has shifted from "digital cash" to "digital deposit currency," with interest accruing on the balance in a real-name wallet. Technically, version 2.0 emphasizes compatibility with distributed ledgers and smart contracts, which is seen by the industry as an absorption of some Web3 technologies, but it has not adopted their decentralized core.

The launch of Digital Yuan 2.0 proves that programmability, instant settlement, and on-chain logic are indeed the inevitable forms of future currency. However, within China, this form is required to operate within a centralized, traceable, and sovereign-backed closed loop. This centralized approach is an intermediate product of the interplay between technological evolution and governance logic.

Legal red lines: Defining the boundaries of "illegal financial activities"

As a lawyer who has long practiced on the front lines of Web3, I must remind all practitioners that the underlying risk after 2025 has shifted from "compliance flaws" to "criminal repercussions." This assessment includes, but is not limited to, the following aspects:

The accelerated nature of the legal characterization: Large-scale trading of cryptocurrencies such as USDT is rapidly transforming from administrative violations to criminal charges such as illegal business operations. Especially after the clarification of the "stablecoin" definition, the space for technical defense in judicial practice has been significantly reduced for any business activities involving the two-way exchange of domestic fiat currency and stablecoins, or their use as a payment medium or acceptance business.

Enhanced Regulation: This delineation of boundaries effectively further restricts the possibility of non-public entities participating in financial infrastructure innovation. Domestically, if a non-public entity attempts to build an unofficial value transfer network, regardless of the technology used, it is highly likely to be classified as "illegal liquidation" under the law after substantial penetration by relevant departments. In other words, "technological neutrality" is no longer a foolproof shield. When business involves fund collection, redemption, or cross-border transfers, regulatory penetration will directly pierce through complex layers of agreements, tracing back to the underlying operating entities.

Survival Strategies and Breakthrough Suggestions for Web3 Practitioners

The wall is indeed being raised, but the logic remains intact.

The inclusion of smart contracts in Digital Yuan 2.0 demonstrates that technology has not been negated, but rather reintegrated into a controllable institutional framework. This provides realistic and feasible room for adjustment for Web3 practitioners who truly understand the technology and business logic.

In the current regulatory environment, a more prudent option is to adopt the path of **"strategic diversion"**.

First, there's the issue of overseas expansion and compliance at the business level. If the goal is to build permissionless, decentralized financial applications, then overseas expansion should be thorough, both physically and legally. In jurisdictions like Hong Kong, fully utilizing licensed frameworks such as the Stablecoin Ordinance to conduct global business is a necessary choice, not a stopgap measure, based on respect for the rules.

Second, a conscious "decoupling" of technology and finance. Domestically, any modules with attributes of fund carrying, clearing, or redemption should be resolutely avoided. Since the government is promoting a digital RMB 2.0 ecosystem based on a permissioned system and supporting smart contracts, focusing on underlying architecture, security auditing, and compliance technology development, becoming a technology service provider for the official financial infrastructure, is currently the most stable and sustainable transformation path for technology teams.

Third, pay attention to new opportunities within official channels. Cross-border payment systems, including multilateral central bank digital currency bridges, are becoming one of the few areas within the compliance framework that still have room for expansion. Finding points of application for technological innovation on existing institutional infrastructure may be the truly viable window of opportunity in this round of regulatory reshaping.

Law is never a static set of rules, but rather the result of a game of strategy.

The rules may seem harsh, but understanding them is essential for making better choices. In the context of "restructuring and upgrading," blindly resisting will only amplify the risks. What's truly important is helping the most valuable technological forces find a foothold where they can survive and thrive after the red lines have been redrawn.

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