Shenzhen, a prominent center for manufacturing and technological innovation, is at the forefront of testing China’s digital currency, the digital yuan.

Recently, the city distributed 10 million yuan in digital currency to 50,000 citizens who had registered for the program. This distribution was carried out via mobile “red envelopes,” a digital method inspired by the traditional Chinese practice of gifting money in red packets and popularized initially by WeChat’s digital wallet.

“We’ve observed a similar tactic used by Chinese internet companies to encourage widespread adoption, such as with Tencent’s WeChat and Alibaba’s Alipay during their initial launches,” explained Flex Yang, CEO of crypto finance company Babel Finance, in a statement to TechCrunch.

It’s important to note that the digital yuan differs from cryptocurrencies. It is a digital form of China’s official currency, issued and controlled by the central bank, and aims to provide Beijing with increased oversight of its monetary system. The intention is to complement existing third-party payment applications like WeChat Pay and Alipay, rather than replace them, in a nation where the use of physical cash is declining.

For instance, the central government could potentially distribute subsidies to regional authorities using the digital yuan, which could assist in addressing concerns such as corruption.

Shenzhen is one of four cities in China selected to begin internal testing of the digital yuan, as announced by a government statement in August, though specific details were not provided at that time. The recent distribution to consumers represents the country’s first large-scale, public trial of the centrally issued digital currency.

According to a government announcement, almost 2 million residents of Shenzhen participated in the lottery. Successful applicants received a 200 yuan red envelope through the official digital yuan application and were able to spend the funds at over 3,000 retail locations throughout the city.

Prior to this, there were signals of an upcoming application. In April, Shenzhen’s digital currency development team initiated a recruitment drive for technical roles, including mobile app architects and Android developers.

As a subsequent step, Shenzhen plans to establish a “fintech innovation platform” through its official digital currency institute, as outlined in a recent central government document detailing the city’s five-year development plan, which also includes attracting increased foreign investment in advanced technologies. The city will also be instrumental in advancing the digital yuan’s research, development, implementation, and international partnerships.

The specifics of the “fintech innovation platform” remain somewhat unclear, but Yang from Babel Finance offered an interpretation, stating that it “is intended to enable private companies and other organizations to participate in real-world or capital market development projects designed to collectively promote the adoption of the DCEP [digital currency electronic payment].”

The city is ideally suited for testing private sector involvement, as it has long served as a national example of market-oriented economic reform. Founded in 1980 as one of China’s initial special economic zones, it is now the headquarters of major technology companies such as Tencent, Huawei, and DJI, as well as innovation centers like HAX and Trouble Maker. President Xi Jinping is scheduled to visit the city this week to mark its 40th anniversary.

While the central bank provides the underlying technology and framework for the digital yuan, there are significant opportunities for commercial banks and private companies to develop innovative applications. Both the ride-hailing service Didi and JD’s fintech division have recently announced initiatives to facilitate the real-world implementation of the digital yuan.

“Should the pilot program in Shenzhen prove successful, we can expect other cities to launch their own trials, along with new use cases, thereby accelerating the adoption of the DCEP,” Yang noted.

Story updated on October 12 with expert comments.