On a global scale, El Salvador may just be an obscure border country, leaving a vague impression of volcanic terrain and diverse ecosystems. But in the crypto world, El Salvador is also a notable presence.
Back in 2021, the global monetary environment could be described as tumultuous, with the pandemic causing a sharp increase in monetary debt, global debt soaring to $27.5 trillion, and a new wave of digital currency experiments emerging globally, with Bitcoin's mainstreaming surging to $69,000.
In this environment, the newly inaugurated president of El Salvador, Nayib Bukele, made a rather bold decision to create a new financial system with a new currency, designating Bitcoin as the country'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, making El Salvador the first country in the world to grant legal status to cryptocurrency. Bukele also stated that land would be set aside to build infrastructure such as housing and basic needs, using Bitcoin as the settlement currency, to construct a complete Bitcoin city. The government even developed an electronic wallet named Chivo to promote public adoption.
This decision has caused a sensation globally, with the International Monetary Fund, global central banking institutions, and cryptocurrency industry practitioners all turning their attention to the small Central American nation of fewer than 7 million people, amidst a mix of ridicule and applause. The world hopes to see the results it desires from El Salvador's social experiment, witnessing the vision of 'Bitcoin City' either decline or flourish.
With the hype and publicity, tourists flocked to El Salvador, bringing the first fresh influx of visitors. But problems quickly followed; the high volatility of cryptocurrency, the security of electronic wallets, and the delays and slowness of transfers made the public quickly dissatisfied with cryptocurrency. A year later, only 20% of locals continued to use Chivo. Fast forward to November 2022, the crypto world faced a severe setback, with Bitcoin rapidly dropping to $16,000, while the National Bitcoin Office (ONBTC) of El Salvador was officially established in the same month, an ill-timed misalignment once again cast a shadow over El Salvador's Bitcoin plans. Since then, Bitcoin City has drifted further away, and El Salvador has gradually faded from the crypto stage.
A typical example is the government's ambitious expectation to launch the world's first sovereign blockchain bond, the 'Volcano Bond', which has been continuously postponed from 2022 to 2023 and now to 2024. The bond, originally expected to raise $1 billion, remains far from realization.
But as developments continue, with the market warming up and regulations loosening, Bitcoin is just a step away from $100,000, and global attitudes have also undergone a stark change. The national reserve race for Bitcoin has officially begun, with several countries around the world beginning to show interest in incorporating Bitcoin into their national reserves. In addition to the ambitious rhetoric from the United States, Switzerland has also passed legislation to include Bitcoin in its national bank reserve assets, and Bhutan's Bitcoin holdings even exceed 30% of its total GDP, with lawmakers in Venezuela, Poland, Argentina, and Germany proposing related bills.
El Salvador seems to have transformed from a delusional extremist to an unconventional innovator, becoming the first to 'eat the crab'. According to The Bitcoin Office, since March 16 of this year, El Salvador has adhered to a purchasing principle of one Bitcoin per day. As of the time of writing, its Bitcoin holdings have reached 5,940.77 BTC, with a holding market value of $578,862,354. The hype around Bitcoin City has finally shown investment value, and the city is taking shape. In August of this year, the Turkish holding company Yilport will invest $1.62 billion in two ports in El Salvador, one of which is located in 'Bitcoin City'. In public education, El Salvador has also spared no effort, focusing on promoting 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 is stronger than ever. According to a recent survey by the Francisco Gavidia University in San Salvador, only 7.5% of respondents stated that they use cryptocurrency for transactions, while 92% admitted they do not use cryptocurrency, and only 1.3% believe that Bitcoin is the main direction for the country's future development.
In terms of data alone, El Salvador's Bitcoin vision is still far from realization. Even with strong presidential support, the Bitcoin held by El Salvador accounts for only 1.5% of its GDP, and since 2022, remittances in cryptocurrency have continued to decline from $84.8 million to $57.4 million, according to data from the Central Bank of El Salvador, of all remittances sent to the country from January to August 2024, only 1.1% involved cryptocurrency. In April of this year, the first tokenized debt project initiated by Bitfinex Securities to support the construction of the Hilton hotel in El Salvador failed to attract the minimum required funding of $500,000 needed to continue operations, reflecting the dysfunction of El Salvador's Bitcoin effect. To this, the president can only helplessly acknowledge, “Bitcoin has not achieved the widespread adoption we hoped for.”
However, from the moment Bitcoin was announced as the sovereign currency, El Salvador's fate became closely tied to Bitcoin. The brand of 'Bitcoin City' has been launched, and the journey of Bitcoin in El Salvador continues. Currently, El Salvador is planning to build new capital markets around Bitcoin and is preparing to introduce more regulatory support policies. Results are already showing; recently, Bitfinex Securities conducted its first public offering of tokenized U.S. Treasury bonds under the legal framework of El Salvador.
In response to all of the above, Juan Carlos Reyes, chairman of the national digital asset commission, El Salvador's highest cryptocurrency regulatory body, accepted an interview with Coindesk to discuss the current situation and future of digital assets in El Salvador in depth.
Below is the full text of the interview with the original author Tom Carreras, translated and slightly modified and adjusted by Tuo Luo Finance:
In regulating cryptocurrency, El Salvador is ahead of most other countries. As the first country to adopt Bitcoin as legal tender, it has become a hub for many cryptocurrency 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,” said Juan Carlos Reyes, chairman of the National Digital Assets Commission (CNAD) of El Salvador, in an interview.
“Even those foreign companies that are locally regulated but do not have complete offices set up locally do not understand the advanced level of regulation in El Salvador and the rapid pace of development in the industry,” Reyes stated, adding that the president's initiative has forced national agencies to work hard to keep up with new technologies and the impacts associated with digital currencies.
As a result, El Salvador avoided granting cryptocurrency regulation and regulatory authority to traditional financial regulatory bodies—such as the Financial System Supervisory Authority (SFS)—and instead created CNAD from scratch, aiming to create a tailored regulatory framework for cryptocurrency rather than trying 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.” However, 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 cryptocurrency after Reyes, a heavyweight in computer science, became the leader in September 2023. Feedback from cryptocurrency companies that obtained the Digital Asset Service Provider (DASP) license in El Salvador has been very positive.
Nick Cowan, CEO of the tokenization solution company VLRM, said in an interview: “We completely did not expect that CNAD is not only knowledgeable and meticulous in its work but also technically proficient.”
Victor Solomon, a partner at the tokenization consulting firm Tokenization Expert in El Salvador, agrees with this view. “We do not want to over-praise El Salvador, but their ability to quickly grasp the core of the problem in reviewing our application is astonishing. We do not have to spend time explaining the technical foundation of our operations—they already understand the complexity 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 just a head of a regulatory agency but an advocate for 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 ravaged 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 PhD 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, and his experience is quite extensive. After leading a consulting firm for 15 years, he developed business opportunities for the Missanabie Cree First Nation and even opened a bar on the second floor of his beachfront villa. Since 2013, he has been a believer in Bitcoin, which led him to decide to return to El Salvador in 2021 to participate in the nationalization process of cryptocurrency.
CNAD has a fully independent team of 35 employees, and Reyes provides a sample standard: everyone must be well-versed in the underlying technology of cryptocurrency. In fact, currently, 20 employees are pursuing postgraduate cryptocurrency courses at CEMA University in Argentina to enhance their expertise.
“In terms of regulating crypto assets, we have the highest quality and most complete team in the world,” Reyes said. “If someone does not know how to trade Bitcoin, including my driver, they may not be able to work here.”
This elite team undoubtedly leaves 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 worldwide, 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 job quite cumbersome.”
“This is a very detailed and complex process. We submitted a 700-page application, but the decision-making process was much faster after submission compared to other countries... The process is consistent with any other regulatory procedure we had to go through before; it's not that we took a different route, 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, but verify—and check the blockchain every time it interacts with a new company applying for a license. The team does not rely on documents provided by compliance officers, as such documents are often found to mislead regulators.
Reyes likes to use an analogy to explain why cryptocurrency needs a dedicated regulatory body. “If you buy an electric car and it breaks down, you hand it to a mechanic with 20 years of experience, but when he opens the hood, he finds no engine, just a battery, and he doesn't know how to deal with it.”
This is also the different feeling that cryptocurrency and traditional financial assets give Reyes. They may appear similar on the surface, but upon deeper exploration, they are fundamentally 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. With a GDP of only $35 billion, it ranks 17th among Latin American countries and 103rd in the world. This country does not have its own currency, nor does it have strong financial institutions, and it lacks an existing developer ecosystem. Yet, precisely because of this, in regulating cryptocurrency, all these aspects have proven to be favorable, as El Salvador is 'starting 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 that can repair Teslas.
“In other countries, many new technologies are created by rational individuals who try to push the cryptocurrency ecosystem forward, but they do not consider how the technology could be misused and become a tool for money laundering,” Reyes said. “Regulators find it difficult to know the extent of relaxation in regulation.”
“We are able to make CNAD the single entry point for all digital assets in this country; any entity that has not obtained 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 organizations that have been fighting against cryptocurrency, such as implementing Operation Chokepoint 2.0 (which refers 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 stated, noting that he had a Canadian bank account frozen due to his involvement in cryptocurrency activities. “But countries like El Salvador, if they can act quickly and seize the opportunities brought by cryptocurrency, will benefit immensely.”
But what kind of regulatory environment does El Salvador want to create?
Reyes stated that in terms of financial instruments, Bitcoin is “more than enough,” but beyond that, CNAD is agnostic to technology. Most of the companies regulated by the agency operate on Ethereum. The sizes of regulated companies vary widely: 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 of utmost importance. For example, this means requiring exchanges to use multi-signature wallets to ensure that another FTX incident does not occur, or requiring companies' private blockchains to follow certain security standards. Identification of each customer is also mandatory.
“It is important to emphasize that our country has suffered from gang intimidation for years. 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 a license anywhere in the world.
Reyes is particularly passionate about one area: Real-World Assets (RWA). In his view, attempts like VLRM and Tokenization Expert will broaden investment opportunities for retail investors. “Before Robinhood, most young people in the U.S. could not buy Tesla or Nvidia stocks. Robinhood democratized all these different stocks that only super elites could buy. That’s the role of tokenization. In the coming years, Salvadorans are expected to access regulated products that cannot be bought in other jurisdictions.”
Reyes emphasized, “This is the first time in modern history that developing countries are able to lead the financial revolution rather than being left behind 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 nations.”
