The Izalco, a volcano in El Salvador. Image by Angela Rucker via wikipedia, license: public domain

Just over a year ago, El Salvador passed a law on digital assets. The first tokenized financial products are now going live. The country is actually doing well with its crypto strategy, which could make it the region’s financial hub – but it is also feeling the disadvantages.

Bitfinex Security announces that it will soon offer a tokenized bond for a hotel complex at El Salvador’s international airport.

The bond has a volume of $6.25 million, a term of five years and an interest rate of 10 percent. It is intended to finance a five-story hotel with 80 rooms, a pool, restaurant, fitness center and more on an area of ​​​​around 5,000 square meters.

In itself there would be nothing special about it. Bitfinex Security has already launched several tokenized bonds, such as the “Blockstream Mining Note” or “Alternative” for micro-financing. Both are conventional financial products that are more moderately than resoundingly successful.

But there are two details worth mentioning: First, Bitfinex Securities relies on Blockstream’s Liquid network, a Bitcoin sidechain, meaning the bonds are indirectly running on Bitcoin. This disqualifies the bond from the usual DeFi platforms of web blockchains, but adds value to Liquid through its name alone.

Secondly – ​​and this is the main point here – this bond is one of the first to be issued based on El Salvador’s “Digital Asset Security Law”. And that’s worth another look.

You know El Salvador because of its Bitcoin law. In January of last year, the small Central American country also passed the “Digital Securities Law”, or “cryptoasset regulation”. This sets a legal framework for all types of digital financial products that are not Bitcoin.

In a sense, the law was specifically designed for the so-called Volcano bonds, a $1 billion bond through which El Salvador wants to raise money to build mining farms and invest in Bitcoin. If the Volcano Bond were to succeed, it would be a remarkable innovation in government financing. But she has been on hold for more than two years.

The first asset that actually managed to receive approval and go live was “$ESOY”, in German: E-Soja. At the end of January, the company E-Grains received permission to issue tokens worth up to $100 million that represent soybeans or futures on them.

According to E-Grains, the soy tokens run on Polygon and Ethereum and are also expected to arrive on decentralized marketplaces. So far there hasn’t been much to see of it, $ESOY is apparently entirely behind the login to E-Grains. In the future, the startup registered in El Salvador would also like to tokenize sugar, coffee and corn, which is no small matter for the agricultural region.

After becoming known worldwide for making Bitcoin legal tender, El Salvador is now positioning itself as a focal point for innovative financial products in the region. This is a proven strategy for a small country to increase the prosperity of its residents. El Salvador, as Bitfinex CTO Paolo Arduino enthuses, “will soon become the central financial hub of Central and South America.”

One can complain for a long time that Bitcoin has more or less flopped as a means of payment in El Salvador. But the attempt alone and the associated Bitcoin law not only attracted a stream of tourists from the Bitcoin community, but also acted as a clear signal to the international fintech community that the country welcomes innovation with open arms. With the Digital Securities Act, El Salvator is strengthening this signal.

In general, things are going well under the government of Nayib Bukele, who was confirmed in office with an overwhelming majority in February, even though the constitution actually prohibits re-election. But its successes are visible: At almost five percent, the economy is growing significantly faster than its neighbors Guatemala and Honduras, with the construction sector, the financial sector and tourism being the driving forces. Crime is falling rapidly, security is increasing and foreign investment is increasing. El Salvador could go from the “Capital of Murder” to the tiger state of Central America.

However, President Bukele’s course also arouses resistance. The country continues to rely on loans from the International Monetary Fund (IMF) to cover its expenses, but negotiations with it have stalled since the Bitcoin law was passed. The IMF sees the Bitcoin law as a risk to the country’s financial stability and demands that it be withdrawn or at least significantly changed.

A Bitcoin-based bond – like the Vulcano Bond – also attracts criticism from the IMF, which is probably the main reason why it is increasingly delayed. El Salvador still needs the IMF loan more than the Vulcano bond.

The Bitcoin law is therefore a big topic in the ongoing negotiations over a $1.4 billion loan. At least the IMF sounds a bit more lenient and only demands changes. But that could also be a matter of interpretation.

What is particularly unfortunate is that the IMF does not seem willing to recognize that El Salvador is creating a foundation for prosperity with its Bitcoin and crypto-friendly policies.


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