El Salvador is seeking closer cooperation with foreign regulators as it draws a line around which parts of the digital asset market it believes can be properly supervised, with its top crypto regulator saying the country does not want decentralized finance within its regulated market.
El Salvador Says DeFi Can't Be Supervised as Regulators Face Capacity Gaps
17 August 2026 - 20:27 UTC
By Sandmark staff
Juan Carlos Reyes, president of El Salvador's National Commission of Digital Assets, told a crowd at Blockchain.RIO 2026 conference that the country only wants to regulate activities it believes can be effectively supervised. "DeFi, fantastic, I use it, I love it, but it is not going to be supervised. We don't want DeFi in El Salvador," he said.
The position illustrates the limits regulators are confronting as digital-asset businesses increasingly operate across jurisdictions and through technologies that do not fit neatly within traditional supervisory structures. It also shows how regulators are struggling to cover a rapidly expanding area without the expertise or staff to do so.
Reyes said El Salvador has begun pursuing memorandums of understanding with regulators in other countries to improve information-sharing and cooperation on the supervision of digital assets and is working with Brazil's central bank on one such agreement.
"The global message is that regulators, people in government, have to understand that digital assets have no geographical barriers and supervision should not have them either," Reyes said. "With Brazil we have spoken, we are with the central bank right now refining the changes for the MOU."
The country is also selective about which companies it allows into that perimeter. Reyes said about 80% of companies applying for licences are rejected, though he argued that the figure also reflects the number of international applicants attracted by El Salvador's framework and the regulator's own limits in supervising companies globally.
"We cannot be the regulator of the world. We still don't have the financial capacity to achieve that," he said.
Rules meet capacity
That constraint extends beyond El Salvador. Officials from Uruguay and Peru speaking at Blockchain.RIO described markets where crypto adoption or the regulatory perimeter are expanding faster than authorities' ability to monitor them.
Uruguay expanded the Banco Central del Uruguay's regulatory perimeter to cover virtual assets through legislation approved in September 2024, before the central bank approved rules governing virtual-asset service providers in July.
But bringing those companies inside the perimeter has also created a new problem: the central bank is now responsible for overseeing businesses that require expertise and resources it did not previously need.
"Our perimeter increased and we have not increased our capacity or staffing," Patricia Tudisco, the BCU's Intendente de Supervisión Financiera, said at Blockchain.RIO. "It is not enough to have regulation. The rules then have to be implemented and, to see that they are implemented correctly, you have to be able to supervise them."
Peru illustrates another version of the same challenge. The country does not yet have a dedicated regulatory framework for crypto assets beyond some anti-money laundering requirements, according to Omar Ghurra, head of innovation and promotion of digital payments at the Banco Central de Reserva del Perú. Yet estimates cited by Ghurra put the number of active crypto users at about 3mn, equivalent to roughly 12%-15% of the country's adult population.
Stablecoins already account for a substantial part of that activity. Ghurra cited a Binance estimate that about 90% of crypto volume in Peru takes place through stablecoins and said their main use case in the country is cross-border payments rather than protection against inflation. "The main use case is cross-border, because traditional cross-border [payments are] very expensive, take more time and have more intermediaries in the chain," he said.
Blockchain analysis firm Chainalysis estimated that Peru received $28bn in crypto transaction volume between July 2024 and June 2025, making it one of Latin America's larger crypto markets outside the region's five biggest.
El Salvador's Bitcoin experiment narrows
El Salvador's current approach marks a shift from the broad Bitcoin adoption policy that made it the first country to give the cryptocurrency legal-tender status in 2021.
As part of a $1.4bn financing loan approved by the International Monetary Fund in February 2025, the government agreed to reduce the state's involvement in Bitcoin and limit some of the risks identified by the fund. Businesses are no longer required to accept Bitcoin, taxes must be paid in US dollars and the government agreed to wind down its participation in the Chivo crypto wallet. The programme also calls for tighter regulation and supervision of digital assets.
Legislation approved in January 2025 amended the Bitcoin Law to make acceptance voluntary and remove provisions requiring the state to facilitate Bitcoin transactions and conversion. Bitcoin exchanges remain exempt from capital-gains tax.
But the retreat from state-backed retail adoption has coincided with an expansion of El Salvador's regulated digital asset market. A separate Digital Assets Issuance Law created the CNAD and a licensing framework for issuers and service providers, while an Investment Banking Law approved in 2025 opened another route for regulated institutions to provide digital asset services to sophisticated investors.
Reyes presented that distinction at Blockchain.RIO as deliberate. El Salvador, he said, had moved away from speculative crypto products and towards markets that regulators believe they can trace and supervise, particularly tokenized assets.
The result is a narrower but more institutional crypto strategy: less emphasis on requiring Bitcoin to function as everyday money and more on attracting regulated businesses.
Additional reporting by Danyella Colares
