Crypto has come a long way in the past 15 years. From an idea worth nothing, to a $1-3 trillion industry competing with online banking and ecommerce.
But a landmark legislation, introduced by El Salvador, champions a whole new tier of capitalization at the governmental level.
In this post-FTX world, anyone with any sizable amount of crypto investments or with interest in continuing to invest, can now contemplate digital bonds backed by a state.
El Savador’s Digital Asset Issuance Act, recently ratified by its Parliament, represents a new precedent for such sovereign crypto bonds.
Interesting in its own right, but what does this mean for business and investors?
This bond issuance intends to provide new, low risk investment opportunities for any private party or government entity.
But being backed by a state with a credit rating of CCC/Caa2 doesn’t exactly ensure a low risk or guaranteed ROI for buying these digital bonds ?. But it is interesting to see a movement like this, from the first country to adopt Bitcoin as legal tender in September of 2021. At some point, a mechanism like this could allow for additional, vital financing and/or loan repayment for any government issuing them. We’re just going to have to keep an eye on this.
The bill came into effect on Jan. 11 with 62 votes for and 16 against, and is set to become law after it is ratified by President Bukele.
According to crypto exchange Bitfinex — which it’s important to note is the tech engine behind the deal for the bonds — these Volcano Bonds/Volcano Tokens would allow El Salvador to raise capital to pay down its sovereign debt, fund construction of the Bitcoin City, and create Bitcoin mining infrastructure that is more enticing to investors.
El Salvador’s Volcano Token is targeted to raise $1 Billion and would be backed by the proceeds generated from its geothermal Bitcoin mining operation, which harnesses energy from the nation’s active volcanoes. By leveraging the nation’s natural resources and geothermal energy, El Salvador’s Bitcoin mining industry would utilise only renewable energy to create new Bitcoin, making investment in the bond very attractive to both traditional and ESG investors.
With countries looking for new ways to make Crypto stable, more legislatures following suit are expected throughout 2023.