El Salvador has just passed landmark legislation which will provide the legal framework required for a Bitcoin-backed bond, known as the Volcano Bond. The Volcano Bond shall reportedly be utilized to pay down sovereign debt in addition to funding the construction of the proposed Bitcoin City. The bill was officially passed on January 11th, 2023, with 62 votes in favor and 16 votes against, and it will become law after President Nayib Bukele ratifies it. The Volcano Bond will therefore enable El Salvador to generate capital to successfully create Bitcoin mining infrastructure as well as for the aforementioned purposes, according to Bitfinex. The volcano descriptor is understandably derived from Bitcoin City, which is set to become a renewable crypto-mining hub that is completely powered via hydrothermal energy from the nearby Conchagua volcano. As per Bitfinex, the city would function as a special economic zone, similar to those in China, offering tax breaks, crypto-friendly regulations, and other incentives to Bitcoin businesses for its residents. The bonds are expected to generate $1 billion for the country, with 50% of the proceeds going toward the construction of the special economic zone. Moreover, the tokenized bonds would be denominated in USD, have a 10 year maturity date, and a 6.5% annual interest rate, as noted in the initial proposal. Lastly, apart from those issued on Bitcoin, the bill also includes a legal framework for all digital assets which are not Bitcoin and establishes a new regulatory agency in charge of applying the securities law and deterring bad actors.
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