El Salvador has passed landmark legislation providing the legal framework for a Bitcoin-backed bond, known as the “Volcano Bond,” which will be used to pay off sovereign debt and finance the construction of its proposed “Bitcoin City.”
The bill was approved on January 11 with 62 votes in favor and 16 against, and will become law after it is ratified by President Bukele.
#Plenary90✍ With 62 votes in favor, we created the Digital Assets Issuance Law. pic.twitter.com/g1poXwLoH3
— Legislative Assembly (@AsambleaSV) January 11, 2023
El Salvador’s National Bitcoin Office announced the approval of the bill in a Twitter thread on January 11, noting that it would begin issuing the bonds soon.
3/ El Salvador is the epicenter of Bitcoin adoption and, therefore, of economic freedom, financial sovereignty, resistance to censorship, and unconfiscatable wealth.
When we issue the first of the volcano bonds, we will once again be leading the way for this new monetary revolution.
— The Bitcoin Office (@bitcoinofficesv) January 11, 2023
According to The Bitfinex crypto exchange, which is the technology provider for the bonds, Volcano Bond, or Volcano Tokens, would allow El Salvador to raise capital to pay off its sovereign debt, finance the construction of Bitcoin City, and create Bitcoin mining infrastructure.
The volcano descriptor for the bonds is derived from the location of the country’s Bitcoin City, which will become a renewable cryptocurrency hub powered by hydrothermal energy from the nearby Conchagua volcano.
Bitfinex notes that the city would be a special economic zone similar to those seen in China, offering tax breaks, crypto-friendly regulations, and otherwise incentivizing Bitcoin businesses for its residents.
The bonds are intended to raise $1 billion for the country, with half going toward building the special economic zone.
According to the initial proposalthe tokenized bonds would be denominated in US dollars, would have a ten-year maturity date, and an annual interest rate of 6.5%.
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Samson Mow, a Bitcoin advocate who has been involved in the development of Volcano Token, told Cointelegraph that passage of the bill could help turn the country into a “major” financial center.
“The measure to approve the new Digital Securities Law and enable new instruments such as Bitcoin Bonds will help El Salvador to pay its existing debts and will be essential to transform the country into an important financial center in the world.”
The bill also includes a legal framework for all non-Bitcoin digital assets, in addition to those issued in Bitcoin, and creates a new regulatory agency that will be in charge of enforcing securities law and providing protection against bad actors.
5/ The new legislation also creates the National Digital Assets Commission, the regulatory body in charge of enforcing the securities law and protecting the rights of buyers and issuers of digital assets in El Salvador, and deterring fraudsters from operating here .
— The Bitcoin Office (@bitcoinofficesv) January 11, 2023
