Exactly. There is
no distortion in the digital domain, such thing simply does not exists. So what
@onlyoneme and
@morillon are talking about could be either problems with their equipment (DAC, processor, measurements rig, etc) or a malfunctioning WiiM Mini TOSLINK transmitter chip (possibly due to bugs in the firmware). The latter explanation I have really hard time imagining since distortion they are observing is obviously input signal level-dependent, which rules out things like clock inconsistency. Then we are left with power supply but that's also quite unlikely to produce such effect.