El Salvador’s president, Nayib Bukele, wants to utilize a “bitcoin bond” to create a new municipality named “Bitcoin City,” which would be fueled by geothermal energy from a volcano.
Bukele made the announcement on stage during the LABITCONF conference in San Salvador’s grand finale on Nov. 20 in the late evening. Samson Mow, Blockstream’s chief strategy officer, was also present. El Salvador had reached an agreement with Blockstream and Bitfinex parent iFinex to issue the bonds in question, according to The Block.
The bonds, according to the president, would be used to construct a “Bitcoin City” near a volcano that will power the municipality’s activities as well as bitcoin mining. The bonds will be accessible in2022, according to Bukele. He believes that the city’s public infrastructure will cost around 300,000 BTC (around $16.8 billion at press time).
The city would be built near the Pacific Ocean’s Gulf of Fonseca, a body of water with volcanic islands that also serves as a boundary between Honduras and Nicaragua. Bukele envisions the municipality as a circle with a bitcoin sign in the centre that can be seen from the air. Residential and commercial zones, bars and restaurants, an airport, a port, trains, and entertainment would all be available in the city.
“The government will supply the land and public infrastructure, economic regions will attract investors [who] will contribute to the city’s development and construction, and, of course, Bitcoin City is dedicated to providing free and equal access to everything,” Bukele added.
Bitcoin City would ultimately be fueled by geothermal energy from a neighbouring volcano. This volcano will be distinct from the Tecapa volcano, which now powers the country’s mining operations.
Bukele stated that the new city, which would have its own mayor, would not levy income taxes, capital gains taxes, property taxes, or payroll taxes on inhabitants or enterprises. Instead, a ten percent value-added tax on goods would be imposed to fund city maintenance. Half of the tax revenue would go toward funding basic city services like garbage collection and park maintenance. He claimed the balance will go toward repaying the government’s bonds for the city’s construction.
Blockstream’s Mow went into depth about how the first “Volcano Bond,” which is officially known as EBB1 or El Salvador Bitcoin Bond1, will operate. For its first bond, the Central American government intends to issue $1 billion in bitcoin. Mow added that half of the money would go into buying bitcoin and the other half would go toward subsidizing energy infrastructure and bitcoin mining. He went on to say that this relationship would be the first in a planned series.
“What makes it a bitcoin bond is that it’s backed by bitcoin,” Mow said to the crowd. “Half of the billion dollars will go towards buying bitcoin.” “The president is planning to acquire $500 million worth of bitcoin on the open market.”
The bond will mature in 2032 and contain a 6.5 percent coupon, according to specs shown on a screen behind Bukele. In addition, the bond features a dividend that would return half of the revenues to investors when the first $500 million in bitcoin is recovered. The bond is issued by the Republic of El Salvador, with Bitfinex Securities designated as the bookrunner. The bond will be issued on the Liquid Network, which is a bitcoin sidechain. The bond may also be purchased in USD, BTC, and USDT, according to the presentation.
According to Mow, the bond includes a five-year “lock-up” term, which means that $500 million in bitcoin will be removed from the market until then. The coupon would then increase owing to a dividend.
“After a five-year lock-up, they will start selling part of that bitcoin to offer an extra coupon to all the investors in the bond,” Mow said, adding that he anticipates Bitcoin to hit $1 million by the end of the five-year period.
El Salvador is also working on a digital securities law, according to Mow, and aims to provide Bitfinex with the first operational license for a securities exchange.
“I know Bitfinex has a lot of whales,” he continued, “so I don’t see an issue filling a billion-dollar bond.” After five years, foreign investors who put in more than $100,000 will be entitled to seek citizenship.
Bukele’s newest — and possibly most significant — announcement since the Central American country legalized bitcoin legal cash on Sept. 7 is the Bitcoin City initiative. In addition to the government’s own Chivo wallet, the president said that a “surplus” from a trust fund containing bitcoin and dollar balances will be used to finance an animal hospital and bitcoin schools.
Despite Bukele’s strong support ratings, the Bitcoin law has caused demonstrations in recent months. Some have already expressed reservations about the new approach, which is unsurprising. Some have expressed reservations about El Salvador’s bitcoin intentions being discussed in English, particularly since Bukele originally disclosed the bill at a conference in Miami in June.