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El Salvador Passes Landmark Crypto Bill, Paving way for Bitcoin-Backed Bonds

In addition, the “Digital Asset Issuance” Act will establish a regulatory agency and a legal framework for all digital assets.

El Salvador has enacted unprecedented legislation creating the legal foundation for a Bitcoin-backed bond — known as the “Volcano Bond” — which will be used to pay down sovereign debt and fund the development of its intended “Bitcoin City”.

The bill was passed on Jan. 11 with 62 votes in favour and 16 votes against, and it will become law if President Bukele ratifies it.

The National Bitcoin Office of El Salvador announced the bill’s passage in a tweet thread on January 11, stating that the bonds will be issued soon.

The Volcano Bond — or Volcano Tokens — would let El Salvador to raise funds to pay down its sovereign debt, support the development of the Bitcoin City, and create Bitcoin mining infrastructure, according to Bitfinex, the bonds’ technology supplier.

The bonds’ volcano descriptor is inspired from the country’s Bitcoin City, which is expected to become a renewable crypto-mi centre powered by hydrothermal energy from the adjacent Conchagua volcano.

According to Bitfinex, the city would be a special economic zone similar to those found in China, offering tax breaks, crypto-friendly rules, and other incentives to Bitcoin firms for its people.

The bonds are expected to raise $1 billion for the country, with half of the proceeds going toward the construction of the special economic zone.

The tokenized bonds would be issued in US dollars, with a ten-year maturity date, and a 6.5% annual interest rate, according to the initial plan.

According to Samson Mow, a Bitcoin supporter who was engaged in the development of the Volcano Token, the bill’s passing might help turn the country into a “major” financial hub.

“The passage of the new Digital Securities Law and the creation of new instruments such as Bitcoin Bonds will assist El Salvador in repaying its existing debts and will be important in transforming the country into a major financial hub of the globe.”

In addition to those issued on Bitcoin, the measure includes a legal framework for all digital assets that are not Bitcoin and establishes a new regulatory agency in charge of enforcing securities legislation and protecting against criminal actors.


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