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El Salvador Passes The Landmark Bill Incorporating Bitcoin Backed Bonds

Top Crypto News: El Salvador passes the Landmark Bill to incorporate Bitcoin Backed Bonds

In November 2021, El Salvador President Nayib Bukele announced that the Central American country – which earlier that year established bitcoin (BTC) as legal tender – was planning to raise $1 billion via bitcoin-backed bonds. The proposed paper soon became known as Volcano Bonds as the money was to go towards – among other things – seeding a bitcoin mining industry reliant solely on renewable energy, including that generated by the country’s active volcanoes.

El Salvador passed the landmark bill that lays the legislative framework for a Bitcoin bond named ‘Volcano bond’ that will be used to pay sovereign debt and fund the construction of ‘Bitcoin city’. The bill was approved after receiving 62 votes in favor of the bill and 16 against it. The bill was passed on January 11, 2023 and will come into effect once upheld by President Nayib Bukele. 

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The National Bitcoin Office of El Salvador announced the movement of the bill in a Twitter thread on January 11, 2023 stating that they will start issuing the bonds soon. 

 

Bitfinex, crypto exchange is the technology provider for the development of the Volcano bonds or Volcano tokens. The volcano descriptor for the bonds will be derived from the location of the country’s ‘Bitcoin City, which is proposed  to become a renewable crypto-mining hub that will be powered by hydrothermal energy from Conchagua volcano. The exchange noted that the city would be deemed as a special economic zone similar to those  in China, which would offer tax advantages, crypto-friendly regulations and incentivize Bitcoin businesses for its residents.

The bonds have been targeted to raise $1 billion for the country, with half of it going into building the special economic zone. According to the initial proposal, the tokenized bonds would be denominated in U.S. dollars, have a ten-year maturity date and would offer an annual interest rate of 6.5%.

The securities are intended to raise $500 million to help build a tax-free, coastal town – Bitcoin City. Another $500 million would be reserved for investing in Bitcoin. Furthermore any appreciation in the virtual digital asset will be shared with bondholders, as per the government’s proposal.

Samson Mow, a Bitcoin proponent who has been a contributor in the development of the Volcano Token, said that the bill’s passage could help turn the country into a “major” financial hub.

“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 bill also includes a legal framework for all digital assets that are not Bitcoin, in addition to those issued on Bitcoin, and creates a new regulatory agency that will be in charge of applying the securities law and providing protection from bad actors.

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Under Bukele’s administration the country has brought 2,381 Bitcoin through June 2021, according to his announcements on Twitter. On November 16, 2022, he said that the government would buy one Bitcoin every day.

The plan has been criticized by credit ratings agencies and the International Monetary Fund, while the nation’s bonds are trading at a steep discount as investors price in a risk of default.

Source: Cointelegraph 

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