An ambitious plan by El Salvador to issue $1 billion in sovereign “Volcano Bonds” backed by Bitcoin has passed a significant obstacle, moving closer to becoming reality, according to a recent report by Coindesk. The country’s newly formed Digital Assets Commission (CNAD) has granted regulatory approval for the bonds, which are set to be issued in early 2024 through Bitfinex Securities.
This approval marks a pivotal moment for the experimental bonds, which were first introduced by President Nayib Bukele in 2021 following El Salvador’s historic adoption of Bitcoin as legal tender. Enshrined in legislation passed with widespread parliamentary support, the bonds are designed to enable El Salvador to access financial markets in order to develop a geothermal-powered Bitcoin mining ecosystem.
Originally scheduled for issuance in 2022, complications stemming from El Salvador’s negotiations with the IMF and the development of a unique regulatory framework for the asset-backed offering caused delays. The green light from CNAD, formed in 2021 to regulate El Salvador’s crypto industry, signifies that the country has successfully established a strong foundation for innovation in crypto finance.
El Salvador is positioning itself at the forefront of digital asset adoption.
Despite the risks associated with Bitcoin’s price volatility and the collapse of FTX demonstrating crypto’s risks, El Salvador is pushing forward with the bonds. The Bukele administration views pioneering government adoption as a differentiating factor that enhances El Salvador’s appeal to investors.
If successfully executed, the value of the bonds will be hedged to maintain price stability while offering an attractive 6.5% coupon paid out in US dollars. The underlying Bitcoin will be held in a transparent public wallet open to scrutiny, with El Salvador legally obligated to redeem the bonds in traditional currency.
While the issuance still faces challenges, such as raising $1 billion in investment for an unproven crypto instrument issued by a developing economy, the Volcano Bonds have taken a significant step toward introducing the world’s first Bitcoin-backed sovereign debt by clearing regulatory barriers.
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