Stablecoins, digital assets designed to maintain a stable value, have experienced significant growth in recent years. Although the cryptoasset ecosystem began with Bitcoin in 2009, it was in 2014 when the first stablecoin was issued, marking the beginning of a new category within the digital asset market. Since then, various developments have impacted this ecosystem, fostering innovation and the development of new products and use cases.
Since their creation, different types of stablecoins have emerged:
- Those backed by cryptoassets.
- Algorithmic stablecoins.
- Those backed by real-world assets.
- The most common, those backed by fiat currency.
Each of these categories presents specific risks, and combined with recent market events, has highlighted the need for clear regulatory frameworks, especially those stablecoins that lack sufficient reserves or adequate backing mechanisms.
Significant regulatory progress has been observed internationally. In Europe, the first regulatory framework for cryptoassets was created: MiCA. Meanwhile, in the United States, regulations such as the GENIUS Act have been proposed, which, in addition to its local impact, has implications for Latin America. We have previously discussed the opportunities in the region regarding the GENIUS Act in a roundtable discussion (View roundtable) and in an article (View article).
El Salvador has positioned itself as a leader in digital assets by establishing a robust regulatory framework. In 2023, the Digital Asset Issuance Law (LEAD) came into effect, enabling the issuance of stablecoins through public offerings. Furthermore, the country has specific regulations on the matter, contained in the Regulation on the Issuance of Public Offerings of Stablecoins (REOPME), which governs the authorization process for new stablecoins, their trading on exchange platforms, and issuers’ obligations regarding asset backing. This framework not only establishes clear rules for issuance but also ensures that stablecoins are properly backed and traded appropriately.
In their early days, stablecoins were primarily used within exchanges as a tool to mitigate the volatility of cryptoassets such as Bitcoin. However, over time they have evolved into a true financial solution, with uses that go beyond trading and are increasingly integrated into everyday life.
One of their main advantages lies in transaction efficiency. Stablecoin transfers take place on blockchain networks, eliminating the need for traditional intermediaries. This means faster transactions and lower costs compared to traditional financial systems. Additionally, settlement can occur in seconds or minutes, facilitating peer-to-peer (P2P) payments and commercial transactions in a swift and efficient manner.
The impact is particularly significant in the realm of cross-border payments. Stablecoins allow money to be sent almost instantly to any part of the world, reducing costs and eliminating the friction inherent in traditional systems, such as lengthy processing times or the need for intermediaries. This benefits both individuals sending remittances and companies making payments to international suppliers.
Likewise, stablecoins promote financial inclusion by providing access to financial services for people who lack access to traditional banking. With an internet connection and a digital wallet, people can participate in the ecosystem, facilitating the integration of users into local and global markets.
From a security standpoint, transactions are protected by cryptography and are irreversible once confirmed, reducing risks associated with chargebacks or fraud. This enables the transfer of significant amounts with high standards of security and traceability.
In El Salvador, the REOPME allows companies to develop their own financial solutions by issuing stablecoins. Interested entities must apply for registration with the National Commission on Digital Assets (CNAD) and comply with the requirements set forth in Articles 5 and 6 of the regulation, including obtaining a “No Objection” resolution to proceed with the issuance.
Among the main regulatory obligations, the requirement to maintain reserves backing the stablecoins in circulation at all times at a minimum ratio of one to one (1:1) stands out; furthermore, at least 70% of these reserves must be invested in assets liquidatable within 30 days and 30% in assets liquidatable in more than 30 days. Additionally, the issuer must submit a monthly affidavit regarding the existence, amount, and composition of such reserves, as well as quarterly independent verification reports (attestations) issued by external auditors.
This regulatory framework not only provides legal certainty to issuers regarding the issuance process and their subsequent obligations but also protects users by ensuring the existence of sufficient reserves and continuous oversight by the CNAD.
Consequently, El Salvador offers a conducive environment for the development of innovative solutions based on stablecoins, whether to mitigate inflationary effects, facilitate cross-border payments, improve liquidity, or promote financial inclusion. The combination of regulatory openness and effective oversight positions the country as an attractive hub for the development of digital financial services.