The chairman of the National Digital Asset Commission introduced the current situation and future of El Salvador in an exclusive interview.
Written by: Tuo Luo Finance
Globally, El Salvador may just be an obscure border country, leaving a vague impression of hot volcanic landscapes and diverse ecosystems. But in the crypto world, El Salvador is also a thunderous presence.
Back in 2021, the global monetary environment could be described as turbulent, with the pandemic causing a steep rise in monetary debt, pushing global debt levels to 27.5 trillion dollars, leading to a new wave of digital currency experiments worldwide, and Bitcoin's mainstreaming surged, hitting $69,000.
In this environment, the newly appointed 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 national sovereign currency. The Congress unexpectedly supported it, and the bill was officially passed with an absolute majority vote, making El Salvador the first country in the world to grant legal status to cryptocurrency. Bukele also stated that land would be allocated to build infrastructure for basic needs such as food, clothing, and housing, 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 worldwide, with the International Monetary Fund, global central banking institutions, and cryptocurrency industry practitioners focusing their attention on this small American country with a population of less than 7 million. The voices of opposition and praise intertwined, and the whole world hopes to see the results they desire from El Salvador's social experiment, witnessing the rise or fall of the vision of the 'Bitcoin City.'
Under the hype and publicity, tourists flocked to El Salvador, bringing in the first wave of fresh traffic. But problems also followed. The high volatility of cryptocurrencies, the security of electronic wallets, and the slow and lagging transfers quickly made the public dissatisfied with cryptocurrencies. A year later, only 20% of locals continued to use Chivo. Fast forward to November 2022, the crypto world faced a heavy setback, with Bitcoin quickly falling to $16,000, while the El Salvador National Bitcoin Office (ONBTC) was officially established in the same month, creating a misalignment that again cast a shadow over El Salvador's Bitcoin plans. Since then, Bitcoin City has gradually faded away, and El Salvador has slowly stepped off the crypto stage.
A typical example is the world’s first sovereign blockchain bond, the 'Volcano Bond,' which the El Salvador government once confidently anticipated to launch for fundraising, has had its issuance repeatedly delayed—from 2022 to 2023 and then to 2024. The bond, which was originally expected to raise $1 billion, is still nowhere in sight.
But as development has progressed, with the market recovering and regulations loosening, Bitcoin is just a step away from $100,000, and the global attitude has changed sharply. The race for national Bitcoin reserves has officially begun, with multiple countries around the world showing interest in including Bitcoin in their national reserves. In addition to bold claims from the United States, Switzerland has also passed legislation to incorporate Bitcoin into national bank reserve assets, and Bhutan's Bitcoin holdings even exceed 30% of its total GDP, with related proposals being put forward by members of parliament in Venezuela, Poland, Argentina, and Germany.
El Salvador seems to have transformed from a deluded extremist into an innovative outlier, becoming the first to take the plunge. According to The Bitcoin Office, since March 16 of this year, El Salvador has adhered to a principle of purchasing one Bitcoin daily, and as of the time of writing, their Bitcoin holdings have reached 5,940.77 BTC, with a market value of $578,862,354. The hype of Bitcoin City finally shows its investment value, and the city's early shape is emerging. 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.' El Salvador is also making great efforts in public education, focusing on promoting Bitcoin salaries among public servants nationwide, transitioning the salary structure from traditional currencies to Bitcoin, and even launching a Bitcoin certification program to provide training and certification related to Bitcoin for 80,000 public servants.
But the public's conservative attitude is stronger than ever. According to a new survey by the University of Francisco Gavidia in San Salvador, only 7.5% of respondents reported using cryptocurrencies for transactions, while 92% admitted they did not use cryptocurrencies, and only 1.3% believed Bitcoin was the main direction for the country's future development.
In terms of data alone, El Salvador's Bitcoin vision is still far from reality. Even with the President's strong 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, 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 El Salvador's Bitcoin effect. The President could only helplessly admit, 'Bitcoin has not yet achieved the widespread adoption we hope for.'
However, from the moment Bitcoin was announced as the sovereign currency, El Salvador's fate has been closely linked to Bitcoin. The brand of 'Bitcoin City' has already been established, and El Salvador's journey with Bitcoin continues. Currently, El Salvador is planning to build a new capital market around Bitcoin and is preparing to launch more regulatory support policies. The results are already visible; just 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, the chairman of El Salvador's highest cryptocurrency regulatory body, the National Digital Asset Commission, accepted an exclusive interview with Coindesk to discuss the current situation and future of digital assets in El Salvador.
Here is the full interview with the original author Tom Carreras, translated and slightly modified by Tuo Luo Finance:
In 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 many crypto companies.
'From a macro perspective, most people will 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 Asset Commission of El Salvador (CNAD), mentioned in an interview.
'Even those foreign companies that are regulated locally but do not have a full office set up here do not understand the advanced level of Salvadoran regulation and the rapidly evolving pace of the industry,' Reyes said, noting that the President's initiative has forced national institutions to strive to adapt to new technologies and the impacts brought by 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)—and instead creates CNAD from scratch, aiming to create a tailored regulatory framework for cryptocurrencies 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.' But in the context of assets, digital assets are completely different from traditional financial instruments.
This is also why CNAD took an immediate technical approach to regulating cryptocurrencies after the heavyweight Reyes in computer science became its leader in September 2023. Feedback from cryptocurrency companies that obtained the El Salvador Digital Asset Service Provider (DASP) license has been very promising.
Nick Cowan, CEO of tokenization solutions company VLRM, stated in an interview: 'We were completely unprepared for the fact that CNAD is not only knowledgeable and meticulous in its work but also technically proficient.'
Victor Solomon, a partner at El Salvador's tokenization consulting firm Tokenization Expert, agrees with this view. 'We do not want to over-praise El Salvador, but their ability to quickly grasp the core of the problem to review our application is astonishing. We do not have to spend time explaining the technical basis of our operations—they already understand the complexities of tokenization and the compliance measures that will be taken. Reyes understands the real challenges faced by businesses, from fundraising to navigating regulations, which makes him not just a regulatory body head but also an advocate for businesses making a positive impact on the Salvadoran economy,' Solomon added.
Reyes was born in El Salvador and moved to Canada as a child to escape the war ravaging the country at that 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 later 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 complex, and his work 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, so in 2021, he decided to move back to El Salvador to participate in the nationalization of cryptocurrency.
CNAD has a completely independent staff of 35, and Reyes provides staff with sample standards: everyone must have a thorough understanding of the underlying technology of cryptocurrencies. In fact, currently 20 employees are pursuing postgraduate cryptocurrency courses at CEMA University in Argentina to enhance their professional knowledge.
'In terms of crypto asset regulation, we have the highest quality and most complete team in the world,' Reyes said. 'If someone doesn't know how to trade Bitcoin, including my driver, they probably won't be able to work here.'
This elite team has undoubtedly left a deep impression on companies seeking to obtain operating licenses in El Salvador.
'Reyes is a technology expert,' Cowan's company has worked with dozens of other regulatory agencies worldwide, he told CoinDesk. 'In other jurisdictions, regulators understand regulations and investor protection, which is certainly critical, but they do not necessarily understand 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 has been much faster than in other countries after submitting the application... The process is consistent with any other regulatory procedures we have had to go through before, not taking a different route, just faster.' Cowan stated.
For Reyes, the agency's knowledge reserve in crypto means it can adhere to one of the most important philosophical tenets in the field—do not trust, verify—and check the blockchain every time it interacts with new applicants for licenses. The team does not rely on documents provided by compliance officers, as such documents are often found to provide false information to regulators.
Reyes likes to use an analogy to explain why cryptocurrencies need dedicated regulatory bodies. '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 won't find an engine, only 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 seem very similar on the surface, but upon deeper digging, the two are completely different. This is also one of the reasons why jurisdictions around the world are slow to make progress in implementing digital asset regulatory frameworks.
However, El Salvador is a small country. With a GDP of only 35 billion dollars, 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 even lacks an existing developer ecosystem. Yet, it is precisely due to this that all these factors have proven to be favorable in regulating cryptocurrencies because El Salvador 'starts from a blank slate.'
Returning to the analogy of electric vehicles, El Salvador is able to focus immediately on fixing the battery and motor 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 are trying to push the crypto ecosystem forward, but they do not consider how the technology might be abused and become a tool for money laundering,' Reyes said. 'It is difficult for regulators to know the extent of regulatory relaxation.'
'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 creators of existing rules, so overturning the original regulations will have broader and more serious impacts than in Latin American countries. 'Traditional finance has lobbying organizations that have been fighting against crypto, such as implementing Operation Chokepoint 2.0 (referring to U.S. regulators restricting cryptocurrency companies from obtaining banking services). They will do everything they can 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 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 sufficient,' but beyond that, CNAD is agnostic towards technology. Most companies regulated by the agency operate on Ethereum. The sizes of regulated companies vary significantly: from global heavyweights like Tether and Bitfinex Securities to small local businesses in El Salvador, which, according to Reyes, 'start from $2,000.'
Consumer safety and financial security are paramount. 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 adhere to certain security standards. Identification of every customer is also mandatory.
'It is important to emphasize that our country has suffered from gang intimidation for many years. Therefore, we place a high value on financial transparency, money laundering, and financial terrorism issues, which have been robustly incorporated into regulations.' He believes that if a crypto company is regulated in El Salvador, then 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 expand the investment opportunities for retail investors. 'Before Robinhood, most young people in the U.S. could not buy stocks of Tesla or Nvidia. Robinhood democratized all these different stocks that only super elites could purchase. This is precisely 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 a developing country can lead a financial revolution rather than being left behind, only 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.'
