In a landmark move, El Salvador has opened the doors for issuing a Bitcoin-backed bond called the “Volcano Bond.”
The legislation, called the “Digital Asset Issuance,” will also look to create a regulatory body and create a legal framework for digital assets operating in the country.
A Landmark Legislation
The Central American country of El Salvador has passed a landmark judgment that will see the creation of the legal framework for a Bitcoin-backed bond, dubbed the “Volcano Bond.” The bond will be utilized to pay the country’s sovereign debt and fund the construction of a proposed “Bitcoin City.” The bill passed relatively easily in the assembly, seeing 62 votes for the proposal and 16 votes against it, and will soon be ratified by president Nayyib Bukele.
Bukele had announced in 2021 that El Salvador was planning on raising $1 billion through Bitcoin-backed bonds. The proposed paper began to be called “Volcano Bonds,” with the money to create a bitcoin mining industry that would rely solely on renewable energy sources, including energy from the country’s numerous active volcanoes. The country’s Bitcoin office announced the bill’s passage on 11th January 2023 on a Twitter thread.
“Today, El Salvador builds on our first-mover advantage by passing landmark legislation establishing a legal framework for all digital assets that are not bitcoin. As well as those issued on bitcoin. The law also paves the way for volcano bonds which we will soon begin issuing. El Salvador is the epicenter of Bitcoin adoption, and thus, economic freedom, financial sovereignty, censorship resistance & unconfiscatable wealth. When we issue the first of the volcano bonds, we will once again be blazing the path forward for this new monetary revolution.”
Cut Sovereign Debt And Create A Bitcoin City
Cryptocurrency exchange Bitfinex, which is the technology provider for the bonds, stated that the Volcano Bonds would allow El Salvador to cut down its sovereign debt, fund the creation of Bitcoin mining infrastructure, and the construction of a Bitcoin City. The bonds have been dubbed the “Volcano Bonds” thanks to the location of El Salvador’s Bitcoin city, which is poised to become a bitcoin mining hub that will be powered by geothermal energy drawn from the Conchagua volcano.
A New Financial Hub
According to Bitfinex, El Salvador’s new Bitcoin city will operate as a special economic zone similar to those seen in China. The city will offer crypto-friendly regulations and tax advantages and incentivize Bitcoin-based businesses for all its residents. The country hopes to raise around $1 billion, out of which around half would be allocated toward the construction of the special economic zone.
The bonds will be denominated in US Dollars, along with a ten-year maturity date, and will feature an annual interest rate of 6.5%. According to Samson Mow, who has been closely working with the development of the Volcano Bonds, the bill could transform the country into a major financial nerve center.
“The move to pass the new Digital Securities Law, and enable new instruments like the Bitcoin Bonds, will help El Salvador to pay off their existing debts and will be critical to transforming the country into a major financial center of the world.”
Apart from Bitcoin, the bill also comes with a legal framework for other digital assets. It also creates a new regulatory agency that would apply the securities law and protect users and investors from malicious actors.
“The new legislation also creates the National Digital Assets Commission, the regulating agency in charge of applying the securities law and protecting the rights of digital asset purchasers as well as issuers in El Salvador, and of deterring fraudsters from operating here.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.