El Salvador’s contentious volcanic bonds backed by bitcoins

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Last week, El Salvador took a step closer to issuing its bitcoin-backed “volcano bonds”. The country’s Legislative Assembly passed a legal framework for issuing blockchain-based digital securities, including provisions allowing companies to trade digital assets other than bitcoin.

62 of its members voted in favor of this new law on the issuance of digital assets on January 11. However, Salvadoran President Nayib Bukele originally planned to issue the bonds as early as March 2022.

Bukele’s regime has repeatedly postponed bond issuance, partly because of weak digital asset markets last year, but also because of more pressing issues, such as a nationwide crackdown on gangs. – By September, mass arrests had incarcerated 2% of all adults. men residing in the country.

Ever since the president made bitcoin legal tender in 2021, he’s struggled to prove the move makes sense for the country — El Salvador has battled with big international players in the financial sector, like the International Monetary Fund.

Bukele has found a new outlet for the bitcoin shilling in the Miss Universe pageant, which El Salvador will host next year.

Indeed, the country holds 2,300 bitcoins and is significantly underwater on its average purchase price. In November, Bukele was estimated to have lost $65 million on bitcoin purchases, a loss of 61%. That same month, he announced his intention to buy one bitcoin per day for an indefinite period.

With the passage of the country’s new law on the issuance of digital assets, El Salvador is about to finally be ready to sell its volcanic bonds for a few bitcoins and USD, but most importantly, Tether.

Here’s what you need to know.

Volcano Bonds are coming whether Salvadorans like it or not

Bukele has a way of getting what he wants. He unilaterally changed the constitution so that he could remain president longer than was previously legal. The military was deployed by Bukele to force legislators to pass his laws.

El Salvador did not have a solid legal framework for issuing debt with digital assets until the legislature introduced a bill in November. It happened at the beginning of the week.

The bill adds a National Digital Assets Commission to the National Bitcoin Board previously created by Bukele, to manage the regulation of private participants in the digital asset industry. He is also creating a Bitcoin fund management agency to manage funds raised through public offerings of digital assets in El Salvador.

The mostly unilateral legislature, controlled by the El Salvador regime, passes a new law.

Bukele plans to raise up to $1 billion with the Volcano Bond. He says his administration will use the proceeds to pay off sovereign debt, invest in bitcoin mining infrastructure, buy bitcoin, and build “Bitcoin City.”

Read more: El Salvador may be broke but it keeps dumping $200 million at Bitcoin Beach

Bitcoin City: Waypoint along China’s Belt and Road

If ever realized, Bitcoin City will reside on the Gulf of Fonseca on the southern coast of El Salvador. The whole project is a recycled version of a Chinese ZEDES project. The city will provide a user-friendly regulatory and tax regime for digital asset companies wishing to do business in El Salvador.

Renders for Bitcoin City have been recklessly plagiarized without attribution. They were redrawn on maps of Central City from the Fullmetal Alchemist manga series.

The Bukele administration plans to use the nearby Conchagua Volcano to power bitcoin mining with geothermal energy. Proceeds from volcanic mining will back the new bonds, hence the name “Volcano Bonds.”

Maps of El Salvador’s “Bitcoin City” are shown on the left; Fullmetal Alchemist’s Central City on the right.

That said, geothermal experts have expressed doubts about the economic viability of Conchagua Volcano for geothermal power generation. Despite years of existence of the volcanoes with all the opportunities for the development of electricity infrastructure, in December 2019, El Salvador was still importing a fifth of its electricity.

Additionally, industrial electricity in El Salvador is still prohibitively expensive for bitcoin mining, averaging 13 to 15 cents per kWh. For years, China and Kazakhstan have sold industrial power contracts for bitcoin mining at less than 5 cents per kWh.

Bitfinex guarantees that Tether will be accepted as a funding source

In Bitfinex’s statement on the Digital Asset Issuance Act, it expected the use of renewable geothermal energy to attract investors interested in environmental, social and governance (ESG) investing. Environmentalists have frequently criticized Bitcoin’s energy use despite a report that more than half of the energy used for Bitcoin mining comes from sustainable sources.

Read more: Opinion: Bitfinex is going completely fascist

Controversial digital asset exchange Bitfinex will provide infrastructure services for the Volcano Bond. He refers to the bond as a “volcanic token,” indicating that he expects the bond to exist as a digital token on a blockchain. Volcano Bonds will accept funding cuts in bitcoin, USD and especially Tether.

It looks like El Salvador Volcanic Bonds will be a great way to launder Tethers by exchanging them for a government-approved debt issuance.

For more informed news, follow us on Twitter and Google News or listen to our investigative podcast Innovated: Blockchain City.

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