Wednesday, 22 November 2023 15:16

Digital Assets Law boosts El Salvador as a regional hub for financial exchanges

Written by editorial staff

The recently approved Law of Issuance of Digital Assets (LEAD) has the potential to position El Salvador as a hub for financial exchanges, by providing a legal framework to increase transactions with digital assets, add liquidity and develop the issuance of these assets in the capital market framework.

This law, approved by the Legislative Assembly on january 11, establishes the rules to regulate digital assets, their transfers and related public offerings, addressing not only cryptocurrencies, but also other assets and their tokenization -such as digital currencies, fiat money, securities, commodities, loyalty points, etc- and the public offerings related to them.

Currently, there are already some companies operating in the country as digital asset service providers (PSAD), among them Koibanx, which recently became the seventh company authorized in the final registry carried by the National Commission of Digital Assets of El Salvador and actively participates in the Salvadoran ecosystem, providing services in alliance with local financial institutions such as Abank and Banco Atlántida.

"This authorization allows us to offer services and products not only with Bitcoin, but also with other assets, such as the exchange of digital assets for fiat money, the operation in platforms and digital wallets, and tokenization, among other possibilities. This achievement strengthens Koibanx's strategy to continue expanding its presence in El Salvador and the region", said Tulio Núñez, General Counsel of Koibanx, a pioneer in providing blockchain infrastructure for the financial system in Latin America.

According to Tulio, thanks to the facilities established by Salvadoran legislation, the country has the potential to position itself as a hub to generate transactional flows of capital raising, something that in other markets has greater challenges due to the lack of regulatory certainty. "El Salvador has the potential to become an attractive platform for foreign companies and investors seeking to settle in the country to access new sources of financing", explained Koibanx's General Counsel.


Financial interoperability with digital assets

In Latin America, Europe and the United States, the use of Web3 capabilities continues to consolidate as allies of innovation for the financial system and as tools not only to streamline transactional and reconciliation processes, but also to promote interoperability through the tokenization of assets for their fungibility as means of payment.

Interoperability is essential for global connectivity and payments efficiency. Blockchain technology plays a critical role in enabling frictionless communication between financial institutions and, in conjunction with tokenization, enables the rails that enable multi-asset payments, which is driving a significant change in the way financial transactions are conducted.

In this regard, Leo Elduayen, CEO and co-founder of Koibanx, commented "Regionally we are looking to enable the exchange of value in multiple formats on a Web3 basis for the traditional financial system. What if you had a technology layer where you could send transactions in various formats? For example, tokenize and transact digital currencies, pesos, dollars, loyalty points even a check or a separate share of a trust, and everything would be reconciled in real time. Blockchain provides financial institutions with an automated record of who owes whom, allowing incumbents to audit and record transactions in this layer, without anyone owning the information outright".

To put it in perspective, and as an example of the above, a local user could receive payments in cryptocurrencies or fiat currency and, at the same time, make real-time payments in any format at their location or when at an international destination. This seamless integration is a testament to the disruptive potential of blockchain technology and asset tokenization in the financial area.

According to a Citi report, the tokenization of financial and real assets could be the revolutionary use case that drives the advancement of blockchain technology, with tokenization expected to grow to 80 times its current size in private markets, reaching a value of nearly $4 trillion by 2030.

JP Morgan launched its B-business unit that has already been used by some banks to settle transactions in dollars and has managed up to $700 billion in short-term loans.

In this context, the regulatory framework and openness that exist in El Salvador position it as a relevant player to compete from Latin America. "The Salvadoran Digital Assets Law is the most open that exists in the region and if used effectively can attract global players to trade in a market designed to boost them and turn El Salvador into a leader in the transformation of financial markets", Tulio concluded.


Translated by: A.M