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Of the $1 Bitcoin bonds from El Salvador, half of the amount will go towards buying Bitcoin and the remaining half towards developing the infrastructure for the Bitcoin City.
Latin American country El Salvador, which recently made Bitcoin a legal tender, is making further aggressive moves. On Saturday, November 20, El Salvador President Nayib Bukele announced the world’s first Bitcoin City in the country.
Apart from building a Bitcoin City, El Salvador also plans to issue the world’s first sovereign Bitcoin bonds. The company will execute this entire project by collaborating with some prominent crypto companies like Blockstream and Bitfinex.
As per the announcement, El Salvador will be issuing $1 billion in tokenized USD denomination. While making the announcement alongside Nayib Bukele, Blockstream‘s chief strategy officer Samson Mow said that the 10-year bond will pay 6.5% via the Liquid Network.
Half of the funds of the so-called $1 Billion “volcano bonds” shall be converted into Bitcoins. The remaining half will go towards infrastructure and Bitcoin mining powered with geothermal energy. After a five-year lock-up period, the government shall start selling its Bitcoins while paying an additional dividend to investors. As a result, $500 million worth of BTC will be out of the market during the lock-up period adding to further liquidity crunch.
Speaking to Bloomberg, Mow said that the Blockstream model shows that at the end of 10-year, the bond will produce an annual percentage yield of 146%. Mow further added that this plan will make El Salvador “the financial center of the world” and “the Singapore of Latin America”. “The first countries that do this will have a massive advantage. This is the beginning of nation state Bitcoin FOMO,” Mow said, referring to “fear of missing out”.
The Development of Bitcoin City
The development of Bitcoin city will involve the participation of prominent crypto companies and investors. El Salvador will also reward the investors with permanent residence while fast-tracking their citizenship.
The development of Bitcoin City will happen near the Conchagua volcano which will provide energy for mining. Bukele also said that Bitcoin City will have a 10% value-added tax to fund the city construction and services.
While making the announcement, Bukele said that the Bitcoin bond issuance will begin in 2022. Furthermore, Bitfinex CTO Paolo Ardoino said that the exchange will support El Salvador’s Bitcoin city initiative by launching a securities platform to hold the Bitcoin bonds. He further added:
“[The platform] will soon be home to many local and foreign digital assets offerings developing new digital asset regulation for the country! El Salvador, Bitfinex and Blockstream are making history together.”
Blockstream CEO further clarified the feasibility of sourcing the $1 billion bitcoin bonds. He said: “With Bitfinex, they have a lot of whales. I don’t see a problem filling up a $1 billion bond.”