• El Salvador to issue $1 billion tokenized bond via Blockstream’s Liquid sidechain with $500 million allocated to construction of the city and $500 million used to buy more bitcoin
  • Bitcoin City will have no tax aside from a VAT and would be powered via geothermal energy from a nearby volcano

El Salvador’s President Nayib Bukele announced over the weekend that his country is planning to build the first ‘Bitcoin City’, a nearly tax-free utopia for Bitcoiners funded by a bitcoin-based bond and geothermal powered bitcoin mining. 

The country plans to fund construction of the city and the infrastructure for bitcoin mining via a $1 billion tokenized bond. The only tax in the City will be a 10% value-added tax to help fund construction and pay for overhead down the road. This bond is issued by Blockstream’s Liquid Network side chain and processed by iFinex. $500 million of the bond, which carries a coupon rate of 6.5%, would be earmarked for construction of the city and necessary mining infrastructure, while the other half of the bond would go towards buying more bitcoin.  

El Salvador’s President Nayib Bukele at the launch event for Bitcoin City

After a five-year lockup period, El Salvador can begin to sell its crypto holdings purchased via the bond to pay an additional dividend to holders. After a 10-year period, Blockstream CSO Samson Mow estimates the APY will be 146% based on the assumption that bitcoin will be worth $1 million by then. For that to occur, the approximately 20.5 million bitcoin circulating supply in 10 years would be valued in USD at over $20 trillion, or roughly twice the current market cap of gold.

Mow believes that the $500 million of the bond that is earmarked for buying bitcoin — assuming that other nations follow El Salvador’s lead — will accelerate its price appreciation by taking coins off the market. El Salvador’s announced purchase amounts to around 8,500 bitcoins, less than 0.4% of the 2.3 million bitcoins currently on exchanges, although that number has been gradually trending downward for the past four months.

During a presentation with El Salvador’s President Bukele, Mow said that El Salvador will become “the Singapore of Latin America” and one of the most important financial centers of the world. El Salvador’s gross domestic product per capita for 2020 was $3,799, while the GDP per capita of Singapore was $59,798 in 2020.

The nearby Conchagua volcano, which powers the new bitcoin mining operation was connected to Blockstream’s orbiting bitcoin node last week.

A regulatory oasis for Bitfinex and Tether?

El Salvador plans to create a new securities law to support the tokenized bond issuance. In a release, iFinex’s role is described as bringing “expertise in adhering to and advancing cryptocurrency laws and regulations; working cooperatively and effectively with law enforcement and regulators; and, issuing and facilitating the trading of digital assets, including cryptocurrencies.”

According to a release from Blockstream, iFinex’s Bitfinex Securities will be processing the bonds, which may be purchased using BTC, USD, and USDT (Tether).

iFinex’s parent, Bitfinex has been fined by the New York Attorney General over irregularities in reporting on Tether’s reserves. Tether is currently being probed by the Department of Justice over allegations of bank fraud, and it is understood that the probe is regarding Tether’s banking relationships in its early days, when it banked with a number of institutions in Taiwan. Tether still provides an address in Taiwan on its FinCen registration, despite having no apparent connections to the country.

Blockstream did not make Mow available for comment, nor was the company able to share the bond’s prospectus with Blockworks.

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  • Blockworks
    Sam Reynolds is a Taipei-based reporter, covering digital assets and regulation throughout Asia. Before joining Blockworks he was an editor at Forkast News and an analyst with IDC.