El Salvador passes landmark legislation for Bitcoin-backed bonds
El Salvador has made a revolutionary move in the crypto industry by approving a bill for a Bitcoin-backed bond, known as the “Volcano Bond”, to be used to pay off its sovereign debt and fund the development of “Bitcoin City.” The bill, which passed with 62 votes in favour and 16 against, is set to become law once ratified by President Nayib Bukele.
The Volcano Bond, or Volcano Tokens, will enable El Salvador to raise funds for paying off its debt, constructing the Bitcoin City and creating crypto-mining infrastructure. The bond is named after the location of Bitcoin City, which is near the Conchagua volcano.
In partnership with Bitfinex, a cryptocurrency exchange, and the bond technology provider, the “Bitcoin City” will be designed as a special economic zone similar to those in China. This zone will offer tax benefits, crypto-friendly regulations and other incentives to attract Bitcoin-based businesses to settle in the city. The bonds are expected to raise $1 billion for the country, with half of it going into building the special economic zone.
Watch this video by Tomorrow’s Build explaining what El Salvador’s volcano-powered ‘Bitcoin City’ is all about.
The initial proposal for the tokenised bonds is that they will be denominated in U.S. dollars, have a maturity of 10 years and carry an annual interest rate of 6.5%. The bill also includes a legal framework for all digital assets, including those issued on Bitcoin, and creates a new regulatory agency that will be in charge of enforcing securities law and protecting investors from bad actors.
In summary, this legislation is a significant step forward for El Salvador and the crypto industry as a whole. The use of a Bitcoin-backed bond to fund a government project is a pioneering move and could inspire other countries to consider similar measures.