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

El Salvador has passed landmark legislation providing the legal framework for a Bitcoin-backed bond – known as the “Volcano Bond” – that will be used to repay sovereign debt and finance the construction of its proposed “Bitcoin City”.

The bill was passed on January 11 with 62 votes in favor and 16 against, and is expected to become law after it is ratified by President Bukele.

El Salvador’s National Bitcoin Board announced the bill’s passage in a Jan. 11 Twitter thread, noting that it would soon begin issuing the bonds.

According to crypto exchange Bitfinex, which is the technology provider for the bonds, the Volcano Bond – or Volcano Tokens – would allow El Salvador to raise capital to repay its sovereign debt, finance the construction of Bitcoin City and create mining infrastructure. Bitcoin.

The volcano descriptor for the bonds is derived from the location of the country’s Bitcoin City, which is set to become a renewable crypto-mining hub fueled by hydrothermal energy from nearby Conchagua Volcano.

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Bitfinex notes that the city would be a special economic zone similar to those seen in China, which would offer tax benefits, crypto-friendly regulations, and otherwise incentivize bitcoin businesses for its residents.

The bonds have been targeted to raise $1 billion for the country, half of which is earmarked for the construction of the special economic zone.

Under the original proposal, the symbolic bonds would be denominated in US dollars, have a ten-year maturity and bear an annual interest rate of 6.5%.

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Samson Mow, a Bitcoin supporter who has been involved in the development of the Volcano Token, told Cointelegraph that passing the bill could help transform the country into a “major” financial hub.

“The decision to pass the new Digital Securities Law and allow new instruments such as Bitcoin Bonds will help El Salvador repay its existing debts and will be key to transforming the country into a major financial center of the world.”

The bill also includes a legal framework for all non-Bitcoin digital assets, in addition to those issued on Bitcoin, and creates a new regulatory agency that will be responsible for enforcing securities law and providing protection against bad actors.