What is Central Bank Digital Currency? Will CBDC Replace Cryptocurrency? Risk Scenario Analysis: Baseline, Bullish, and Stress Testing

Central Bank Digital Currency (Central Bank Digital Currency, CBDC) is worth understanding by crypto-asset users, investors, and enterprise payment teams because it is not just 'putting cash into a phone.' If CBDC is gradually implemented, it could change fiat payment, bank deposit structures, stablecoin regulation, cross-border settlement routes, and users' understanding of self-custody assets. At the same time, to treat CBDC simply as a 'state version of cryptocurrency,' or to claim it will definitely replace Bitcoin, Ethereum, and stablecoins, would underestimate the institutional differences and market division of labor between different monetary forms.

First define: what exactly is CBDC

CBDC usually refers to a digital form of sovereign currency issued or endorsed by a central bank. It is part of the legal tender system like banknotes and coins, but exists in digital form and can be used for payment, settlement, or value storage. Design approaches differ greatly by country and region: some focus on wholesale CBDC for interbank settlement and securities delivery for financial institutions; some explore retail CBDC for everyday consumption and transfers; other projects focus on cross-border payments, synchronized foreign exchange settlement, or multi-central bank interoperability.

To understand CBDC, we first need to distinguish three concept groups:

So CBDC and cryptocurrencies may both use digital ledgers, cryptography, or programmable payment technology, but their objective functions differ. CBDC supports payment efficiency, monetary policy transmission, and financial stability in the sovereign currency system; Bitcoin emphasizes permissionless value transfer and fixed issuance rules; public chain assets such as Ethereum serve smart contracts, on-chain applications, and network resource pricing; stablecoins connect on-chain markets with fiat liquidity.

Baseline scenario: CBDC is more likely to "coexist by scenario" than replace cryptoassets all at once

In the baseline scenario, CBDC's main impact is not to immediately replace cryptoassets but to reshape payment and settlement infrastructure in specific scenarios. Most jurisdictions, when designing CBDC, consider financial stability, the role of commercial banks, privacy protection, anti-money laundering compliance, offline payment capability, and public acceptance. These constraints usually make CBDC rollouts gradual, rather than replacing existing bank accounts, bank cards, third-party payment rails, and on-chain stablecoins overnight.

For ordinary users, the most direct change could be that in scenarios like government subsidies, public transport, small-value retail, cross-institution transfers, or offline payment, there may be a central-bank-backed digital fiat wallet. It may settle more directly than some traditional payment tools and may include controllable anonymity, traceable audits, limit management, or purpose-restricted payments. But whether these functions exist depends on local regulation and technical design and cannot be generalized.

For the crypto market, baseline effects usually appear in three paths:

1. Payment narrative repricing: If CBDC significantly lowers small-value fiat payment costs, the narrative of 'paying for coffee with cryptocurrency' will weaken in some cases. But assets like Bitcoin and Ethereum are not valued only by retail payment demand; they are also influenced by store-of-value narratives, on-chain ecosystems, macro liquidity, and risk appetite.
2. Stablecoins face a clearer regulatory comparison: Once CBDC provides an official digital fiat option, regulators may place more focus on stablecoin reserve transparency, redemption mechanisms, issuance licensing, and payment use cases. Compliant stablecoins may benefit from clearer rules, while weak-reserve or opaque stablecoins face greater pressure.
3. Role adjustment for banks and payment institutions: If CBDC is distributed through commercial banks or authorized payment institutions, banks may still shoulder customer identification, wallet services, risk control, and liquidity management. If design is too close to direct public custody of central bank accounts, concerns may arise over bank deposit migration, so practical designs often set limits, tiered wallets, or non-interest-bearing arrangements.

A specific example is cross-border remittances. Today, a small cross-border transfer may pass through correspondent banks, remittance companies, local banks, and FX intermediaries, with high fees and settlement time. If wholesale or retail CBDC systems across multiple countries achieve compliant interoperability in the future, settlement efficiency may improve. But this does not mean every user will abandon stablecoins, because stablecoins still have network effects in on-chain trading, exchange top-up/off-ramp operations, DeFi collateral, and global USD liquidity scenarios. The likely outcome is that compliant cross-border payments use CBDC or bank networks, while on-chain applications continue to use stablecoins and native cryptoassets.

Bullish scenario: CBDC could actually increase understanding of digital asset infrastructure

A bullish scenario does not mean CBDC will definitely raise cryptoasset prices; rather, CBDC adoption may make society more familiar with digital wallets, programmable payments, real-time settlement, and key security, thereby indirectly expanding acceptance of digital asset infrastructure.

First, CBDC may promote public understanding that a 'digital wallet is not an exchange account.' If users start using official or bank-provided wallets, limits, identity authentication, offline payments, and transaction record management, they will more easily understand the differences between crypto wallets, hardware wallets, signature confirmation, and address management. For self-custody tools, this educational effect may lower the entry barrier, but it does not remove private-key management risk.

Second, CBDC may drive standardization of payment system APIs, identity credentials, and compliance interface standards. If enterprises can access digital fiat payments through compliant interfaces, on-chain institutions may also place greater emphasis on auditability, reserve proof, permission separation, and compliant settlement. For stablecoin issuers, custodians, wallet service providers, and compliant DeFi infrastructure that seeks long-term mainstream financial integration, this could be a positive signal.

Third, in wholesale financial markets, CBDC or tokenized central bank money may interact with tokenized bonds, fund units, carbon assets, or other real-world assets (RWA) in settlement. If traditional financial institutions need to complete cross-settlement of securities and cash in on-chain or distributed ledger environments, this could drive more mature standards for wallets, custody, risk control, and settlement. This does not mean public chain assets will inevitably benefit, but it would elevate industry attention to 'asset digitization' and 'settlement automation.'

A bullish scenario requires certain conditions: CBDC design remains open and interoperable rather than fully closed; regulatory rules allow compliant private-sector innovation; there is a clear boundary between user privacy and compliance audits; and banks and payment institutions are willing to treat CBDC as infrastructure rather than merely a defensive tool. If CBDC is simply a closed payment channel, positive externalities for the open blockchain ecosystem will decline noticeably.

Stress scenario: how CBDC may compress cryptoasset space

In a stress scenario, CBDC's impact on the crypto market is more direct, especially concentrated in stablecoins, exchange liquidity, payment tokens, and cross-border remittance.

The first source of stress is regulatory substitution. If regulators believe CBDC already meets domestic digital payment demand, they may impose stricter limits on unlicensed stablecoin issuance, payment use, and exchange top-up/off-ramp activity. In this case, local usage of non-compliant stablecoins may shrink, exchanges may need to adjust fiat channels, and users could face higher conversion friction.

The second source of stress is liquidity migration. In some regions, if CBDC wallets have low-cost transfers, government backing, and broad merchant coverage, users may reduce use of private payment wallets or domestic stablecoins. If local exchanges and market makers cannot efficiently connect CBDC with crypto-asset markets, bid-ask spreads may widen and market depth may decline, especially impacting small-cap tokens and locally quoted trading pairs.

The third source of stress is a recalibration of privacy and traceability. CBDC systems usually need to satisfy anti-money laundering, countering terrorist financing, and sanctions compliance requirements. If data governance design is overly centralized or transaction visibility is too high, some users may move to privacy tools; but regulators may also strengthen restrictions on mixing services, privacy coins, and interactions with non-custodial wallets. This creates a two-way squeeze: compliant users are directed toward official payment channels, while users with high privacy needs face higher compliance risk and liquidity discount.

The fourth source of stress is bank deposits and financial stability constraints. If retail CBDC is designed to be held in large amounts and has high security, in times of market panic the public may shift from commercial bank deposits to CBDC, creating digital run pressure. To avoid this risk, policymakers may set holding caps, non-interest structures, tiered fees, or transfer restrictions. These limits then affect CBDC's ability to substitute cryptoassets: the more it looks like cash and a safe asset, the more likely it is to pressure bank deposits; the more constrained it is, the harder it is to fully replace stablecoins and on-chain assets.

Key triggers: which events change the judgment

Whether CBDC will materially affect cryptoassets should not be judged by headlines like 'a country announced CBDC research'; instead, judge whether trigger conditions have reached execution.

Key triggers to track closely include:

• Legal status clarity: Whether CBDC is formally defined as legal tender, a central bank liability, or a specific payment instrument, and whether public holdings are allowed.
• Issuance architecture rollout: Whether the central bank distributes directly to users or operates on a two-tier model via banks and payment institutions; whether wallet tiers, holding caps, and transaction limits are set.
• Merchant and institution onboarding: Whether CBDC enters tax payment, payroll, government subsidy, public transportation, large retail, and e-commerce scenarios.
• Relationship with bank deposits: Whether it earns interest, whether large transfers are allowed, and whether it remains fully liquid during periods of bank stress.
• Cross-border interoperability: Whether genuine transaction pilots are completed with other central banks, banking networks, or international settlement platforms, rather than only proof-of-concept demos.
• Concurrent stablecoin regulation rollout: Whether hard requirements are introduced on reserves, redemption, issuance licensing, audit disclosure, and payment usage.
• Wallet privacy rules: Whether small-value anonymity or controlled anonymity is allowed, who stores data, and what procedures are required for law-enforcement access.

If these conditions remain at the level of research reports and small-scale pilots, market impact is usually at the narrative level; if law, merchants, banking interfaces, and cross-border settlement advance together, impact moves from narrative into cash flow and business-model levels.

Leading and lagging indicators: how to build a dashboard

CBDC impacts often appear first in institutions and infrastructure, and only later pass through to market prices. Investors and industry observers can separate indicators into leading and lagging indicators.

Leading indicators include:

1. Consultation papers, technical white papers, and draft legislation published by central banks, ministries of finance, and financial regulators;
2. Whether commercial banks, payment institutions, telecom operators, and large merchants are participating in pilots;
3. Whether CBDC wallets support offline payments, programmable payments, cross-institution transfers, and identity layering;
4. Whether stablecoin issuers strengthen reserve disclosure, apply for licenses, or adjust service regions;
5. Whether exchanges add or shut down certain fiat channels, bank partnerships, or local payment interfaces;
6. Whether cross-border CBDC projects move from experiments to real-value transactions or limited production environments.

Lagging indicators are closer to outcomes:

• Active CBDC wallet users and number of transactions, while being careful about short-term spikes caused by one-off subsidies or forced promotion;
• Actual merchant acceptance ratio and repeat payment ratio;
• Changes in bank deposit structure, especially migration of retail deposits during stress;
• Local stablecoin volume, redemption scale, and changes in on-chain circulation;
• Local bid-ask spreads on crypto exchanges, order-book depth, and top-up/withdrawal time;
• Trends in on-chain active addresses, stablecoin transfer volumes, DeFi total value locked, and related indicators.

A practical checklist is as follows:

Cross-asset impact: not only cryptoassets

CBDC is a monetary and payment infrastructure issue, so its impact spans cryptoassets, bank stocks, payment companies, bonds, FX, and risk assets.

For cryptoassets, impact is most direct on stablecoins and payment tokens. Bitcoin may be more driven by macro liquidity, real yields, and risk appetite; Ethereum and other smart-contract platforms are affected by on-chain applications, fee income, scaling, and regulation. If CBDC improves digital fiat experience, it may weaken some 'payment efficiency' narratives but not necessarily weaken demand for self-custody, single-point-of-failure resilience, and open finance.

For stablecoins, CBDC is both a competitor and a benchmark. Domestic CBDC could compress space for local stablecoins, but the reason USD stablecoins are widely used is not only convenience in payment; it is also due to global market demand for USD liquidity, on-chain settlement, and exchange quotation units. Non-USD CBDC cannot necessarily replace USD stablecoins if it cannot be freely used across borders.

For commercial banks, the key is deposit migration. If CBDC can be held in large amounts and has high security, low-cost bank deposits may shrink, putting pressure on net interest margins and credit creation capacity. Therefore many designs preserve the bank intermediary role or limit the store-of-value function of retail CBDC. When analyzing bank sectors, investors should focus on whether CBDC design changes deposit stickiness, not on technical pilots alone.

For payment firms, CBDC may lower clearing and settlement costs or may compress some fee income. Large payment networks that become providers of wallets, identity, risk controls, merchant acquiring, and cross-border compliance services may turn CBDC into new infrastructure; if public payment rails replace them, profit models face pressure.

For bonds and money markets, if CBDC changes banks' reserve demand, deposit structure, or short-term fund flows, it may affect money-market rate transmission. But this impact depends heavily on whether CBDC earns interest, whether caps are set, and how liquidity is managed by central banks.

For the FX market, if cross-border CBDC improves settlement efficiency, some transaction costs may fall, but it does not automatically change exchange-rate fundamentals. Capital controls, monetary policy, trade structure, and international trust still determine the limits of currency internationalization.

Risk management framework: what users and investors can do

When facing CBDC, it is not appropriate to treat it as either a 'go all-in on substitution' or 'completely ignore it' approach. A more robust framework is to view it as a long-term institutional variable and manage risk by asset type and use case.

First, separate holding objectives. If you hold Bitcoin for long-term storage or macro hedge, you should not judge value solely on CBDC payment progress; if you hold payment tokens or local stablecoins, you should pay much more attention to CBDC merchant coverage and regulatory substitution risks.

Second, separate custody methods. CBDC wallets, exchange accounts, bank accounts, and self-custody wallets have different risks. A CBDC wallet may come with identity and compliance restrictions; exchange accounts carry platform credit and freeze risk; bank accounts carry bank operations and policy risk; self-custody wallets carry private-key loss, phishing signatures, and address-error risk. When using hardware wallets to manage long-term crypto assets, offline mnemonic backup, address and permission checks before signing, and distributing exposure across hot-wallet limits should be basic practices.

Third, manage stablecoin exposure. Do not only check whether a stablecoin is 'pegged to 1 USD'; also assess reserve assets, redemption channels, issuing jurisdiction, audit disclosure, on-chain contract permissions, and pair liquidity. When CBDC or stablecoin regulation advances, low-liquidity stablecoins may de-peg, face redemption delays, or trade at discounts.

Fourth, avoid excessive leverage. CBDC headlines can trigger short-term narrative volatility, for example tighter stablecoin regulation, exchange channel changes, or expanded pilots in a country. Leverage positions can be force-liquidated when liquidity falls, especially for small-cap tokens and low-depth trading pairs.

Fifth, set scenario-triggered rebalancing rules. For example: if a region clearly requires licenses for payment stablecoins and major exchanges close local stablecoin channels, reduce exposure to related stablecoins and local exchange venues; if CBDC is limited to small-value retail pilots and does not affect exchange liquidity, do not over-adjust core asset allocation; if cross-border CBDC and tokenized-asset settlement enter real production environments, reassess exposure to RWA, custody, and compliance-infrastructure segments.

Data that needs continuous updating: which conclusions cannot remain static

CBDC is still evolving along multiple paths, and any static conclusion can quickly become outdated. At minimum, continuously updated data should include the following categories.

First are each central bank's and international organizations' research, pilots, and legal arrangements for CBDC. Different regions have different goals: some prioritize cash replacement, others financial inclusion, others cross-border settlement, and others sovereign monetary sovereignty and payment resilience. Different goals mean different market impacts.

Second is stablecoin regulation and reserve disclosure. The competitive relationship between stablecoins and CBDC depends heavily on regulatory boundaries. If stablecoins are incorporated into a clear licensing framework and maintain high-quality reserves, they may continue to play a role in on-chain settlement; if regulation limits payment use or cross-border circulation, market structure will change.

Third is user adoption data. The number of wallets opened does not equal real usage, and subsidized transactions do not equal natural demand. More meaningful are active users, repeat rates, merchant retention, average transaction size, offline payment frequency, and cross-institution transfer ratios.

Fourth is banking-system data. If during CBDC promotion retail bank deposits move unusually, money market rate volatility increases, or banks raise deposit rates to retain customers, that indicates CBDC is already affecting the financial intermediary structure.

Fifth is on-chain data. Changes in stablecoin supply, exchange reserves, on-chain transfer volume, DeFi collateral structure, cross-chain bridge traffic, and fee levels can help determine whether CBDC is truly diverting on-chain activity.

Finally, technology and security events. As CBDC systems move into large-scale use, they will face tests in identity authentication, prevention of offline double-spend, endpoint security, data protection, system availability, and disaster recovery. Any major failure or privacy controversy can alter public acceptance and policy pace.

Conclusion: CBDC is a strong variable, but not a universal replacement

The core significance of CBDC is to further digitize sovereign currency and potentially reshape payment, settlement, and compliance infrastructure. In some scenarios it will compete with cryptoassets, stablecoins, bank deposits, and payment companies, and it may also indirectly promote more mature digital-asset infrastructure by educating users and advancing digital settlement standards.

But CBDC can hardly simply 'replace cryptoassets.' The reason is that they solve different problems: CBDC provides regulated digital fiat; cryptoassets and public chains provide open networks, composable applications, market-based assets, and self-custody. Stablecoins lie in between, being influenced by both fiat reserves and regulation while relying on on-chain network effects.

A more reasonable analytical approach is to evaluate CBDC through baseline, bullish, and stress scenarios separately: whether CBDC is moving from pilots to actual use, whether it is changing stablecoin regulation and liquidity, whether it is affecting bank deposits and payment company revenue, and whether it is driving cross-border settlement and tokenized-asset delivery. This framework is suitable for risk identification and asset allocation discussions, but it does not guarantee returns and cannot replace ongoing research on jurisdiction-specific policy, technical design, and market liquidity.

References

1. Tangem: A guide to central bank digital currencies and how they work：https://tangem.com/en/blog/post/a-guide-to-central-bank-digital-currencies-and-how-they-work/
2. Bank for International Settlements: Central bank digital currencies：https://www.bis.org/cpmi/publ/d174.htm
3. Federal Reserve: Money and Payments: The U.S. Dollar in the Age of Digital Transformation：https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm
4. European Central Bank: Digital euro：https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html
5. International Monetary Fund: Central Bank Digital Currency：https://www.imf.org/en/Topics/fintech/central-bank-digital-currency
6. OneKey Blog：https://onekey.so/blog/

Risk Warning

This article is for educational and research purposes only and does not constitute investment advice, legal advice, or tax advice. Assessments of CBDC, stablecoins, and crypto assets are influenced by regulation in each jurisdiction, technical design, and market structure, and may change rapidly. Crypto assets carry significant market volatility risk, liquidity risk, trading slippage, exchange or custodian credit risk, private-key loss, and phishing-signature technical risks; stablecoins also face risks related to reserve asset quality, redemption delays, depegging, and issuer compliance; using leverage can lead to forced liquidation when prices are highly volatile or liquidity drops. CBDC itself may also bring risks around privacy, account restrictions, system availability, bank deposit migration, and policy implementation risk. Readers should make independent decisions based on their own risk tolerance, local laws and regulations, and professional advice.