El Salvador’s Crypto Law Allows Bitcoin-Backed Bonds

El Salvador has recently passed historic legislation that will provide the legal basis for a Bitcoin-backed bond to be issued in the country. This bond, also known as the “Volcano Bond,” will be put toward the reduction of the country’s overall debt as well as the funding of the construction of the “Bitcoin City” that is envisioned for El Salvador.

On January 11, 62 individuals cast their ballots in support of the measure, while 16 individuals cast their ballots against it. When President Bukele gives the bill his stamp of approval, it will be well on its way to being enacted as a statute.

As stated by the cryptocurrency exchange Bitfinex, which is the technology provider for the bonds, the Volcano Bond, which is also known as Volcano Tokens, would make it possible for El Salvador to raise capital to pay down its sovereign debt, fund construction of the Bitcoin City, and create Bitcoin mining infrastructure. All of these goals could be accomplished with the proceeds from the sale of the bonds.

The bonds were given the volcanic description because of the location of the country’s Bitcoin City, which is planned to become a self-sustaining crypto-mining center that will be fueled by hydrothermal energy obtained from the nearby Conchagua volcano. As a direct result of this, the bonds were presented in the form of an active volcano.

According to Bitfinex, the city would function as a special economic zone, analogous to those that can be found in China. Such a zone would offer residents of the city tax breaks, rules that are friendly to cryptocurrencies, and other incentives to encourage them to engage in Bitcoin-related business.

It is anticipated that the issuance of these bonds will bring in one billion dollars for the country, of which half a billion dollars will be allocated to the building of the special economic zone. The first hypothesis suggested that the maturity date of the tokenized bonds would be in ten years, that they would be denominated in U.S. dollars, and that they would bear an annual interest rate of 6.5%.

In addition, the measure creates a legal framework for all digital assets that are not Bitcoin, in addition to those that are issued on Bitcoin, and it also establishes a new regulatory body that will be responsible for administering securities legislation and providing protection from malicious actors.