‘Developing Countries Can Lead the Financial Revolution’

Juan Carlos Reyes, the president of the CNAD, sat down with CoinDesk for an unique interview.

Crypto regulators want to know the expertise deeply earlier than providing regulatory frameworks, Reyes mentioned.

Tokenization efforts are significantly enticing as a result of they allow the democratization of entry to structured securities.

In the case of regulating cryptocurrencies, El Salvador has an edge over most different international locations. It was the primary nation to undertake bitcoin (BTC) as authorized tender in 2021 and has grow to be residence to a variety of crypto firms.

“If we take a look at the large image, most individuals won’t perceive what we’re doing in El Salvador; they solely see a glimpse,” mentioned Juan Carlos Reyes, chairman of the Nationwide Fee for Digital Property in El Salvador (CNAD), which was created in February 2023 to manage the crypto sector within the Latin American nation of 6.3 million – informed CoinDesk in an interview.

“Even the overseas firms which are regulated right here however do not have a full workplace on website do not perceive how superior we already are and the way shortly issues are progressing on this sector.”

President Nayib Bukele’s initiative compelled nationwide businesses to grapple with the expertise and implications of working with a digital forex, Reyes mentioned.

Consequently, El Salvador averted giving crypto supervisory and regulatory powers to its conventional monetary regulators – just like the Superintendence of the Monetary System (SFS), for instance – and as a substitute created the CNAD from scratch. The purpose was to create a tailored regulatory framework for crypto somewhat than making an attempt to bend current guidelines to digital property.

“There’s an previous saying in English: ‘If it seems like a duck, it appears like a duck, and it quacks like a duck, then it is in all probability a duck,’” Reyes mentioned. “Properly, on this case it isn’t a duck. Digital property are nothing like conventional monetary devices.”

That is why the CNAD took a technology-focused method to regulating crypto as quickly as Reyes – a pc science heavyweight – grew to become the company’s chief in September 2023. The outcomes are stunning, in response to crypto firms that acquired El Salvador’s Digital Asset Service Supplier. DASP) license.

“We have been utterly overwhelmed by the data, how detailed and the way utterly versed in not solely the laws, but in addition within the expertise [the CNAD was],” Nick Cowan, Group CEO of tokenization options firm VLRM, informed CoinDesk in an interview. “With out making an attempt to reward El Salvador an excessive amount of, we have been utterly amazed at how shortly they have been in a position to get to the center of the matter and evaluation our software.”

Victor Solomon, companion at Salvador-based tokenization consultancy Tokenization Knowledgeable, agreed.

“We did not need to spend time explaining the technical foundation of our enterprise – [Reyes] already understood the intricacies of tokenization and the compliance measures we had in place,” Solomon informed CoinDesk.

“He understands the sensible challenges [that] that firms face, from fundraising to navigating laws, making him not solely a regulator, but in addition an advocate for firms seeking to make a constructive influence on the Salvadoran economic system,” Solomon added.

The technologist

Born in El Salvador, Reyes moved to Canada as a toddler to flee the gang struggle that was ravaging the nation on the time. A self-described “particular person of very excessive achievement,” he holds a number of bachelor’s levels (pc science, arithmetic and physics), in addition to a grasp’s diploma in administration from Harvard and a doctorate in philosophy from the Individuals’s Friendship College of Russia. To not point out the PhD in worldwide economics he’s now pursuing.

His skilled background is simply as diversified. His expertise ranges from working a consulting agency for 15 years to growing enterprise alternatives for the Missanabie Cree First Nation to opening a bar on the second flooring of his seaside home. He has been a believer in Bitcoin since 2013 and determined to maneuver again to El Salvador in 2021 to take part within the cryptocurrency nationalization course of.

The CNAD, which has 35 workers, is totally unbiased and modeled on Reyes’ picture: everybody is aware of crypto (and the underlying expertise) just like the again of their hand. In truth, twenty workers members are at present enrolled in a postgraduate crypto program on the College of CEMA in Argentina to brush up on their experience.

“We have now the perfect skilled and most full workforce with regards to crypto asset regulation on the planet,” Reyes mentioned. “If somebody would not know easy methods to make a transaction with Bitcoin, together with my driver, they in all probability cannot work right here.”

This crack workforce is definitely leaving a robust impression on the businesses making an attempt to get a license to function in El Salvador.

Reyes “is a technologist,” Cowan, whose firm has labored with dozens of different regulators world wide, informed CoinDesk. “He undoubtedly understands the expertise. In different jurisdictions you could have regulators who perceive the regulation and investor safety, which is in fact important, however they do not essentially perceive the expertise, and that may generally make it fairly troublesome to get to the purpose of what it’s worthwhile to do. reaches.”

“It was a really detailed and sophisticated course of. I imply, we submitted a 700-page software,” Cowan mentioned. “However the decision-making course of was rather a lot sooner [than in other countries] after the appliance was submitted… It was extremely thorough, I’d say, as equal as any regulatory course of we have needed to undergo earlier than. It wasn’t simpler, simply sooner.”

For Reyes, the company’s crypto literacy means it might adhere to one of many area’s most valued philosophical rules — do not belief, confirm — and begin exploring the blockchain each time they work together with a brand new firm that is licensed searching for. The workforce doesn’t depend on the paperwork supplied by compliance officers, and this has already led to firms being caught offering incorrect data to the regulator.

El Salvador’s benefit

Reyes likes to make use of an analogy to elucidate why crypto wants its personal regulator. For those who purchase an electrical automotive and it breaks down, and you are taking it to your mechanic of twenty years, nicely, when he opens the hood, he’ll discover no motor, only a battery. And he will not know what to do with it.

That is what crypto and conventional monetary property are to Reyes. On a floor degree they give the impression of being the identical. However dig a bit of deeper, and it is a utterly completely different beast. It is likely one of the the explanation why jurisdictions world wide have been sluggish to implement regulatory frameworks for digital property.

Nonetheless, El Salvador is a small nation. With a GDP of $35 billion, the nation’s economic system ranks seventeenth amongst Latin American international locations and 103rd on the planet. It doesn’t have its personal forex, nor does it have robust monetary establishments, and even an current developer ecosystem. However Reyes says all of this stuff have confirmed to be a boon with regards to regulating crypto, as a result of El Salvador began “with a clean sheet of paper.”

To return to the electrical automotive analogy, it’s as if El Salvador may instantly concentrate on repairing batteries and engines, as a substitute of getting to transform its current infrastructure – designed for engines and pistons – into the sort of storage that may restore a automotive. Tesla.

“In different international locations, many of those new applied sciences are created by harmless folks making an attempt to advance the crypto ecosystem, however they do not at all times take into consideration how the expertise will be perverted and used as a device for cash laundering,” mentioned Reyes. “It is troublesome for regulators to understand how loosely to manage.”

“We have now managed to make the CNAD the one entry level for all digital property within the nation,” Reyes mentioned. “Anybody who doesn’t have a allow from the fee is breaking the legislation.”

There’s additionally the truth that monetary establishments in Western international locations have extra to lose from a change in the established order than some Latin American international locations. “They’ve lobbyists. They fought it. They applied Operation Chokepoint 2.0. They’ve finished every little thing they’ll to make sure that this business doesn’t flourish,” mentioned Reyes, who as soon as had a Canadian checking account frozen over his crypto actions. Nations like El Salvador have every little thing to achieve in the event that they act shortly and make the most of the alternatives that crypto affords.

The right way to Regulate Crypto

However what sort of regulatory surroundings does El Salvador wish to foster?

Reyes mentioned that by way of monetary devices, Bitcoin was “greater than sufficient,” however that the CNAD is in any other case expertise agnostic. A lot of the firms regulated by the company run on Ethereum. The dimensions of the regulated firms varies: there are world heavyweights like Tether and Bitfinex Securities, in addition to Salvadoran firms “that began with, you already know, $2,000,” Reyes mentioned.

Client security and monetary safety are on the high of the precedence checklist. Meaning, for instance, requiring exchanges to make use of multi-signature wallets to make sure no new FTX can happen, or requiring an organization’s personal blockchain to fulfill sure safety requirements. The identification of every buyer can also be obligatory.

“It’s a must to keep in mind that gangs have terrorized our nation for years,” Reyes mentioned. “So we take monetary transparency, cash laundering and monetary terrorism very significantly, and these are firmly enshrined in regulation.” In line with him, if a crypto firm is regulated in El Salvador, it might acquire a license anyplace on the planet.

There’s one sector that Reyes is especially enthusiastic about: real-world property. Efforts resembling these of VLRM and Tokenization Knowledgeable will increase the vary of funding choices for retail traders, he mentioned. “Earlier than Robinhood, most younger folks within the US would by no means have been in a position to purchase Tesla or Nvidia [stocks],” mentioned Reyes. “Robinhood democratized entry to all these completely different shares that have been solely obtainable to the tremendous elite. That is precisely what tokenization does.” It’s anticipated that within the coming years, Salvadorans might be uncovered to regulated merchandise that aren’t obtainable in different jurisdictions.

“For the primary time in fashionable historical past, growing international locations can lead the monetary revolution, somewhat than lagging behind and simply selecting up the scraps,” Reyes mentioned. “We try to encourage different international locations to take a look at El Salvador and learn the way they’ll adapt our mannequin to their international locations.”