On Wednesday, the Legislative Assembly of El Salvador passed a bill permitting issuing of digital assets other than bitcoin. A legal framework enabling the issue of a bond backed by bitcoin, also known as the Volcano Bond, was included in the legislation.
El Salvador’s president, Nayib Bukele, declared in November 2021 that his nation intended to raise $1 billion with bonds backed by bitcoin. According to the plan, the money will be used for a bitcoin mining industry reliant only on renewable energy and energy generated by the country’s active volcanoes. The proposed paper quickly gained the name, Volcano Bonds.
The bond offering, which was initially scheduled for March 2022, had to be delayed numerous times, primarily because of the terrible bitcoin bear market of the previous year.
At the end of November 2022, the Legislative Assembly—where Bukele’s party, Nuevas Ideas, had a commanding majority—finally saw the introduction of the digital assets bill. On November 23, 2022, sixty-two lawmakers voted in favor of the measure, while 16 abstained.
A $500 million direct investment in bitcoin and an investment of the same amount in expanding the region’s energy and bitcoin mining infrastructure would each receive a portion of the bond proceeds.
The bonds with a 6.5% yield will allow investors to become citizens quickly. In addition, the government will distribute half of the additional gains to investors as a Bitcoin Dividend after the initial $500 million has been monetized. These dividends will be paid out annually using Blockstream’s asset management platform.
El Salvador declared Bitcoin to be legal tender on September 7, 2021, and subsequently amassed about 2,381 BTC, or about $39.3 million at the time of writing (it reached its peak in November 2021, when it was valued at more than $100 million). Even during the bull market, the investment’s profit was used to build hospitals and schools. As the nation’s economy keeps declining, 77.1% of Salvadorans want the government to stop “spending public money on Bitcoin.”
