EL SALVADOR Law and Practice Contributed by: Héctor Torres, Annette Herrera and Daniel Leiva, Torres Legal
the activity as falling within the DASP perimeter. If the harm involves fraud, money laundering, terrorist financing, cybercrime or suspicious transactions, the UIF and the FGR may also become relevant. For truly decentralised protocols with no identifiable legal person or operator, enforcement remains more difficult, particularly in identifying a defendant, proving control and enforcing remedies. In the absence of DeFi-specific regulation, best prac- tice for projects with a Salvadoran nexus includes clear governance documentation, user disclosures, contractual risk allocation, smart contract audits, incident response procedures and a clear description of any role performed by identifiable legal entities or contributors. Payments in crypto-assets are permitted in El Salva- dor. Bitcoin payments are allowed, but following the 2025 amendments to the Bitcoin Law, acceptance by private parties is voluntary rather than mandatory. In practice, parties may agree to use Bitcoin as a means of payment, but no merchant is generally required to accept it. Payments in other digital assets, including stable- coins, are not prohibited, but they are not legal ten- der and depend on contractual agreement between the parties. Where a business merely accepts a digi- tal asset as consideration for goods or services, the analysis is generally contractual, and the tax treatment will depend on whether the transaction falls within the LEAD’s exemption regime or the general income and VAT framework. However, if the activity involves providing payment, transfer, exchange, custody or settlement services for third parties, it may fall within the DASP perimeter and require CNAD registration. In those cases, the provider must comply with applicable AML/CFT, KYC, Travel Rule, cybersecurity, user protection and report- ing obligations. 6. Payments and Stablecoins 6.1 Payments
The BCR remains relevant where crypto-asset pay- ment activity connects with payment systems, bank- ing infrastructure or settlement rails. Accordingly, crypto payments are permitted, but intermediated payment services involving digital assets must be ana- lysed under the LEAD, CNAD regulations and, where applicable, the general payment system framework. 6.2 Stablecoins 6.2.1 Fiat Currency and Algorithmic Stablecoins El Salvador distinguishes stablecoins from other digi- tal assets. Under Article 5 of the LEAD, a stable cur- rency is defined as “a type of digital asset designed to minimise price volatility and that references, repre- sents or is backed by an asset or basket of assets”. CNAD has also issued the Regulation on the Issuance of Public Offerings of Stable Currencies, creating a specific regulatory layer for this type of asset. The framework is mainly designed for stablecoins supported by identifiable reference or backing assets, including fiat currency or other assets. Fiat- backed stablecoins are required to disclose the refer- ence asset, backing mechanism, custody or reserve arrangements, redemption mechanics, risk factors and other relevant information in the offering docu- mentation, in accordance with the applicable stable- coin offering regulation. Algorithmic stablecoins are not treated as a separate fully developed category under the LEAD. If an algo- rithmic stablecoin is offered from or into El Salvador, its classification would require a case-by-case analy- sis. Depending on its structure, it may be treated as a stable currency, hybrid token or other digital asset subject to the LEAD and CNAD review. Because of the risks associated with maintaining a peg through algorithmic mechanisms rather than iden- tifiable reserves, an algorithmic stablecoin would likely be subject to heavier regulatory scrutiny by CNAD. The regulator would be expected to focus closely on price stability, redemption mechanics, market risk, liquidity, stress scenarios, disclosures and investor protection.
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