El Salvador Passes Law on Volcano Bonds to Pay Debt and Build a Bitcoin City

El Salvdaro is officially for Volkano Bond. (photo: twitter @ali Kasetamilne)

JAKARTA - El Salvador has passed a landmark law that provides a legal framework for Bitcoin-backed bonds known as “Volcano Bonds”, which will be used to pay off the country's debt and fund plans for the construction of “Bitcoin City”.

The bill passed on January 11 with 62 votes in favor and 16 against, it and was passed into law after being ratified by President Nayib Bukele.

El Salvador's National Bitcoin Office announced the passage of the bill in a Twitter thread on January 11, noting that they will start issuing bonds soon.

According to crypto exchange Bitfinex, which is a technology provider for bonds, Volcano Bonds or Volcano Tokens will enable El Salvador to raise capital to pay off its country's debt, fund the construction of Bitcoin City, and create a Bitcoin mining infrastructure.

#bitcoin Volcano Bonds are coming 🌋pic.twitter.com/YS6eadbY7X

— ₿itcoin Meme Hub 🔞 (@BitcoinMemeHub) January 11, 2023

The volcano descriptor for the bonds comes from the location of the country's Bitcoin City, which will be a renewable crypto mining center powered by hydrothermal energy from the nearby Conchagua volcano.

Bitfinex noted that the city will become a special economic zone similar to that seen in China, which will offer tax advantages, crypto-friendly regulations, and otherwise incentivize Bitcoin business for its residents.

The bonds are targeted to raise US$1 billion (IDR 15.6 trillion) for the country, with half of it being used to establish a special economic zone.

According to the initial proposal, the tokenized bonds would be denominated in US dollars, have a maturity date of ten years, and have an annual interest rate of 6.5%.

Samson Mow, a Bitcoin advocate who has been involved in the development of the Volcano Token, told Cointelegraph that the passage of the bill could help turn the country into a "major" financial center.

“The move to pass the new Digital Securities Act, and activating new instruments such as Bitcoin Bonds, will help El Salvador to pay off their existing debt and will be critical to turning the country into a major world financial center,” said Mow.

The bill also includes a legal framework for all non-Bitcoin digital assets, other than those issued for Bitcoin, and creates a new regulatory body that will be responsible for implementing securities laws and providing protection from bad actors.