Globally, El Salvador may just be an obscure border country, leaving a vague impression of its hot volcanic landscapes and diverse ecosystems. But in the crypto world, El Salvador is also a well-known presence.
Back in 2021, the global monetary environment could be described as turbulent, with the pandemic leading to a sharp increase in monetary debt. The global debt soared to $27.5 trillion, and a new wave of digital currency experimentation emerged globally, with Bitcoin mainstreaming rapidly, reaching $69,000.
In this context, newly inaugurated President Nayib Bukele made a rather bold decision to create a new financial system using a new currency, adopting Bitcoin as the nation's sovereign currency. The Congress unexpectedly supported it, ultimately passing the bill with an absolute majority vote, officially making Bitcoin the legal tender of the country, thus making El Salvador the first country in the world to grant legal status to cryptocurrencies. Bukele also stated that land would be allocated to build infrastructure such as food, clothing, and shelter, using Bitcoin as the settlement currency to construct a complete Bitcoin City. The government even developed an electronic wallet called Chivo to promote public adoption.
This decision caused a sensation globally, with the International Monetary Fund, global central banks, and cryptocurrency industry practitioners focusing their attention on the small American country with a population of less than 7 million, with opposition, ridicule, and applause intermingling. The whole world hopes to see the results they desire from El Salvador's social experiment, witnessing its vision of the 'Bitcoin City' either flourish or decline.
Amid the hype and publicity, tourists flocked to El Salvador, bringing the first wave of fresh traffic. But problems also arose quickly; the high volatility of cryptocurrencies, the security of electronic wallets, and the delays and slowness of transfers quickly led the public to become dissatisfied with cryptocurrencies. A year later, only 20% of locals continued to use Chivo. By November 2022, the crypto world suffered a heavy setback, with Bitcoin rapidly dropping to $16,000, while El Salvador's National Bitcoin Office (ONBTC) was officially established in the same month. This misalignment of timing cast another shadow over El Salvador's Bitcoin plans. Subsequently, the vision of Bitcoin City receded, and El Salvador gradually faded from the crypto stage.
A typical example is the world’s first sovereign blockchain bond, the “Volcano Bond,” which the Salvadoran government initially planned to issue to raise funds for city construction. The issuance date has been continuously postponed from 2022 to 2023 and then to 2024. The bond, originally expected to raise $1 billion, is still far from being issued.
However, as the market warms up and regulations loosen, Bitcoin is just a step away from $100,000, and global attitudes have changed dramatically. The race for national reserves of Bitcoin has officially begun, with several countries around the world showing interest in incorporating Bitcoin into their national reserves. In addition to the boastful United States, Switzerland has also passed legislation to include Bitcoin in its national bank reserve assets, while Bhutan's Bitcoin holdings even exceed 30% of its GDP. Legislators in Venezuela, Poland, Argentina, and Germany have proposed related initiatives.
El Salvador seems to have transformed from a radical dreamer into an unconventional innovator, becoming the first to take the plunge. According to The Bitcoin Office, since March 16 of this year, El Salvador has adhered to the principle of purchasing one Bitcoin daily. As of the time of writing, its Bitcoin holdings reached 5,940.77 BTC, with a market value of $578,862,354. The hype around Bitcoin City is finally showing investment value, and the city is taking shape. In August of this year, Turkish holding company Yilport will invest $1.62 billion in two ports in El Salvador, one of which is located in “Bitcoin City.” In terms of public education, El Salvador is also making efforts to promote Bitcoin salaries among civil servants nationwide, shifting the salary structure from traditional currency to Bitcoin, and even launching a Bitcoin certification program to provide training and certification related to Bitcoin for 80,000 civil servants.
However, the public's conservative attitude has increased. According to a new survey from the University of Francisco Gavidia in San Salvador, only 7.5% of respondents reported using cryptocurrencies for transactions, while 92% admitted they had not used cryptocurrencies, and only 1.3% believed Bitcoin was the main development direction for the country’s future.
From a purely data perspective, El Salvador's Bitcoin vision is still far away. Even with strong presidential support, the Bitcoin held by El Salvador accounts for only 1.5% of its GDP. Since 2022, remittances in cryptocurrencies to El Salvador have also continued to decline, dropping from $84.8 million to $57.4 million. According to data from the Central Bank of El Salvador, from January to August 2024, only 1.1% of all remittances sent to the country involved cryptocurrencies. In April of this year, the first tokenized debt project initiated by Bitfinex Securities to support the construction of Hilton hotels in El Salvador even failed to attract the minimum required funding of $500,000 to continue operations, reflecting the failure of the Bitcoin effect in El Salvador. In this regard, the president can only helplessly admit, “Bitcoin has not achieved the widespread adoption we hoped for.”
But in any case, since the announcement of Bitcoin as sovereign currency, El Salvador's fate has been closely linked to Bitcoin. The brand of “Bitcoin City” has been established, and El Salvador's Bitcoin journey continues. Currently, El Salvador is planning to create new capital markets centered around Bitcoin and is preparing to introduce more regulatory support policies. The effects are already visible, just recently, Bitfinex Securities again conducted the first public issuance of tokenized U.S. Treasury bonds under El Salvador's legal framework.
In response to all of the above, Juan Carlos Reyes, chairman of El Salvador's highest cryptocurrency regulatory body, the National Digital Assets Commission, accepted an exclusive interview with Coindesk to discuss the current state and future of digital assets in El Salvador.
The following is the full text of the interview with the original author Tom Carreras, translated and slightly adjusted by TuoLuo Finance:
In terms of regulating cryptocurrencies, El Salvador is ahead of most other countries. As the first country to adopt Bitcoin as legal tender, it has become a hub for numerous crypto companies.
“From a macro perspective, most people do not understand what we are doing in El Salvador; they can only see a corner of the whole picture,” Juan Carlos Reyes, chairman of the National Digital Assets Commission (CNAD) of El Salvador, mentioned in an interview.
“Even foreign companies that are regulated locally but do not have a full office established locally do not understand the advanced level of regulation in El Salvador and the rapid pace of development in the industry,” Reyes said, noting that the president's initiative has forced national institutions to work hard to respond to the impacts brought by new technologies and the close relationship with digital currencies.
Therefore, El Salvador avoids granting crypto regulation and regulatory power to traditional financial regulatory agencies—such as the Financial System Regulatory Authority (SFS)—but instead creates CNAD from scratch, aiming to create a tailored regulatory framework for cryptocurrencies rather than attempting to extend existing rules to digital assets.
“There is a method of inductive reasoning: when I see a bird that walks like a duck, swims like a duck, and quacks like a duck, I call it a duck.” But in the context of assets, digital assets are completely different from traditional financial instruments.
This is also why CNAD immediately adopted a technical approach to regulating cryptocurrencies after Reyes became its leader in September 2023. Feedback from cryptocurrency companies that obtained digital asset service provider (DASP) licenses in El Salvador has been very positive.
Nick Cowan, CEO of tokenization solutions company VLRM, stated in an interview: “We were completely unprepared; CNAD is not only knowledgeable and detail-oriented but also technically proficient.”
Victor Solomon, a partner at Tokenization Expert, a tokenization consulting firm in El Salvador, agrees with this view. “We do not want to overpraise El Salvador, but it is shocking how quickly they can grasp the core of the issues to review our applications. We do not have to spend time explaining the technological basis of our operations—they already understand the complexities of tokenization and the compliance measures that will be taken. Reyes understands the real challenges businesses face, from fundraising to navigating regulations, which makes him not only a regulatory authority but also a business advocate positively impacting the Salvadoran economy,” Solomon added.
Reyes was born in El Salvador and moved to Canada as a child to escape the war that was ravaging the country at the time. He describes himself as “accomplished,” holding multiple bachelor's degrees in computer science, mathematics, and physics, as well as a master's degree in management from Harvard University. He then pursued a Ph.D. in philosophy at the People's Friendship University of Russia, but did not complete it due to the pandemic and the war in Ukraine.
His professional background is highly composite, with a broad range of experience. After leading a consulting company for 15 years, he developed business opportunities for the Missanabie Cree First Nation and even opened a bar on the second floor of his beach villa. Since 2013, he has been a believer in Bitcoin, so in 2021, he decided to move back to El Salvador to participate in the nationalization of cryptocurrency.
CNAD has a completely independent team of 35 employees, and Reyes provides a sample standard for them: everyone must have a thorough understanding of the underlying technology of cryptocurrencies. In fact, currently, 20 employees are pursuing graduate-level cryptocurrency courses at CEMA University in Argentina to enhance their level of expertise.
“In terms of crypto asset regulation, we have the highest quality and most comprehensive team in the world,” Reyes said. “If someone doesn’t know how to trade Bitcoin, including my driver, they probably can’t work here.”
This elite team has undoubtedly left a deep impression on companies seeking to obtain operating licenses in El Salvador.
“Reyes is a technical expert,” Cowan's company, which has worked with dozens of other regulatory bodies globally, told CoinDesk. “In other jurisdictions, regulators understand regulations and investor protection, which is certainly crucial, but they do not necessarily understand the technology, which can sometimes make your work quite burdensome.”
“This is a very detailed and complex process. We submitted a 700-page application, but the decision-making process after submission is much faster than in other countries... The process is consistent with any other regulatory procedures we previously had to go through; it’s not that we took a different path, just that it’s faster,” Cowan stated.
For Reyes, the agency's cryptocurrency knowledge base means it can adhere to one of the most important philosophical tenets in the field—don't trust, verify—and check the blockchain every time it interacts with new companies applying for licenses. The team does not rely on documents provided by compliance officers because such documents are often found to provide misleading information to regulators.
Reyes likes to use an analogy to explain why cryptocurrencies need dedicated regulatory agencies. “If you buy an electric car and it breaks down, you take it to a mechanic with 20 years of experience, but when he opens the hood, he doesn't find an engine; he only finds a battery, and he doesn't know how to handle it.”
This is also the different feeling that cryptocurrencies and traditional financial assets give Reyes. They may appear similar on the surface, but upon deeper exploration, they are entirely different. This is also one reason why global jurisdictions have made slow progress in implementing regulatory frameworks for digital assets.
However, El Salvador is a small country. Its GDP is only $35 billion, ranking 17th among Latin American countries and 103rd in the world. The country has no own currency, no strong financial institutions, and even lacks an existing developer ecosystem. But precisely because of this, in regulating cryptocurrencies, all these factors have proven to be advantageous, as El Salvador “started from a blank slate.”
Returning to the analogy of electric vehicles, El Salvador can immediately focus on repairing batteries and motors without having to transform its existing infrastructure into a garage capable of repairing Teslas.
“In other countries, many new technologies are created by rational people who try to push the crypto ecosystem forward, but they do not consider how the technology could be abused and become a tool for money laundering,” Reyes said. “Regulators find it difficult to know the extent of regulatory easing.”
“We are able to make CNAD the single entry point for all digital assets in this country; any entity that has not received permission from the commission is illegal.”
Another fact is that financial institutions in Western countries are the rule-makers of existing regulations, so overturning existing regulations will have broader and more severe impacts than in Latin American countries. “Traditional finance has lobbying institutions that have been fighting against cryptocurrencies, such as implementing Operation Chokepoint 2.0 (referring to U.S. regulators restricting cryptocurrency companies from obtaining banking services). They will do everything possible to ensure that this industry does not thrive,” Reyes once had a Canadian bank account frozen due to engaging in cryptocurrency activities. “But countries like El Salvador, if they can act quickly and seize the opportunities brought by cryptocurrencies, will reap significant benefits.”
But what kind of regulatory environment does El Salvador want to create?
Reyes stated that in terms of financial instruments, Bitcoin is “more than sufficient,” but beyond that, CNAD is agnostic towards technology. Most of the companies it regulates operate on Ethereum. The sizes of regulated companies vary significantly: there are global heavyweights like Tether and Bitfinex Securities, as well as small local businesses in El Salvador, which, according to Reyes, “start from $2,000.”
Consumer safety and financial security are top priorities. For example, this means requiring exchanges to use multi-signature wallets to ensure another FTX incident does not occur or requiring companies' private blockchains to adhere to certain security standards. Identification of every customer is also mandatory.
“It is important to emphasize that our country has suffered years of intimidation from gangs. Therefore, we place great importance on financial transparency, money laundering, and financial terrorism issues, which have been strongly incorporated into regulation.” He believes that if a cryptocurrency company is regulated in El Salvador, it can obtain licenses anywhere in the world.
Reyes is particularly enthusiastic about one area: Real World Assets (RWA). In his view, attempts like those from VLRM and Tokenization Expert will expand investment opportunities for retail investors. “Before Robinhood, most young people in the U.S. could not buy shares of Tesla or Nvidia. Robinhood democratized all these different stocks that only super elites could buy. This is precisely the role of tokenization. In the coming years, Salvadorans are expected to access regulated products that cannot be purchased in other jurisdictions.”
Reyes emphasized, “This is the first time in modern history that developing countries can lead the financial revolution rather than being left behind, only able to pick up the scraps. We are trying to encourage other countries to pay attention to El Salvador and learn how to apply our model to other countries.”
