The "Digital Asset Issuance" legislation will also establish a regulatory body and a legal structure for all digital assets.
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El Salvador recently enacted landmark legislation that provides the legal foundation for a Bitcoin-backed bond, named the "Volcano Bond," that will be used to pay off the country's debt and fund the development of its envisioned "Bitcoin City."
President Bukele is expected to ratify the bill, which passed on Jan. 11 with 62 votes in favor and 16 against.
On January 11, the National Bitcoin Office of El Salvador tweeted about the bill's passage and said it would soon start issuing the bonds.
The Volcano Bond, or Volcano Tokens, would enable El Salvador to generate capital to pay down its sovereign debt, fund the development of the Bitcoin City, and establish infrastructure for bitcoin mining, according to crypto exchange Bitfinex, which is the technology provider for the bonds.
The bonds' "volcano" descriptor is inspired by the country's "Bitcoin City," which is planned to become a renewable crypto-mining hub driven by hydrothermal energy from the nearby Conchagua volcano.
According to Bitfinex, the city would be a special economic zone, similar to those in China, with tax advantages, regulations that support crypto, and other incentives for people to start Bitcoin businesses.
The bonds are expected to fetch $1 billion for the country, with half of the proceeds going toward the development of the special economic zone.
The initial proposal stated that the tokenized bonds would have a ten-year maturity date, be issued in US dollars, and have an interest rate of 6.5% per year.
Samson, a Bitcoin supporter who worked on the Volcano Token, said the bill's passage could help convert the country into a "major" financial hub.
"The move to pass the new Digital Securities Law, and enable new instruments like the Bitcoin Bonds, will help El Salvador to pay off their existing debts and will be critical to transforming the country into a major financial center of the world."
The bill creates a new regulatory agency that will be responsible for enforcing the securities law and providing security against dishonest actors, and it also includes a legal framework for all digital assets generated on platforms other than Bitcoin.
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