El Salvador passes bill to encourage Bitcoin-backed bonds
El Salvador recently enacted legislation that establishes the legal foundation for a Bitcoin-backed bond, dubbed the “Volcano Bond,” which would help pay the country's debt and finance the development of its envisioned “Bitcoin City.”
On January 11, the National Bitcoin Office of El Salvador tweeted about the bill's passing and said it will soon start issuing the bonds.
With 62 votes in favor and 16 votes against, the measure was approved on Jan. 11. It will become a law if President Bukele ratifies it.
The Volcano Bond, or Volcano Tokens, would enable El Salvador to acquire funds to pay down its sovereign debt, support the development of the Bitcoin City, and establish Bitcoin mining infrastructure, according to cryptocurrency exchange Bitfinex, which is the technology provider for the bonds.
The country's Bitcoin City, which is slated to become a sustainable crypto-mining center fuelled by hydrothermal energy from the nearby Conchagua volcano, is where the bonds' volcanic description originated.
According to Bitfinex, the city would be a special economic zone, similar to those in China, with tax benefits, legislation that supports cryptocurrencies, and other incentives for people to start Bitcoin companies.
The goal of the bonds is to generate $1 billion for the nation, with $500 million going toward the creation of the special economic zone.
The tokenized bonds would have a ten-year maturity date, be issued in US dollars, and have an annual interest rate of 6.5%, according to the first plan.
The Volcano Token was developed by Bitcoin supporter Samson Mow, who also told Cointelegraph that the nation could become a “major” financial center if the measure were to pass.
“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.”
The measure establishes a new regulatory body that will be in charge of enforcing the securities laws and offering protection against dishonest actors, and it also provides a legal framework for all digital assets generated on platforms other than Bitcoin.
