Author: fillippone
During di last event of “Bitcoin Week'', "Feel di Bit", in El Salvador last November 20th, President Nayib Bukele don tok am say project 4 di first El Salvador bitcoin bond issue, guynamed ESBB1.
Di project is quite convoluted, having financial, technological, and practical implications. We go cover am all , but I go try put eyes more on di economic and technical aspects of dis, leaving di discussion of di details of di Bitcoin City part of di citizenship project 2 oda threads.
1. Di Mastaplan
El Salvador, na di only country wen bitcoin Don get legal tender, announced a debt issuance 2 raise capital in oda to "accelerate hyperbitcoinization and carry about a new financial system com dey on top of Bitcoin," na di tok wey Blockstream tok 4 in blog post. Half of di Proceeds of di bonds go be used to build a new city, guynamed “Bitcoin City”, in di Gulf of Fonseca, in di immediate vicinity of an active volcano, wey geothermal energy go be used not only 2 power di city itself bt also to mine bitcoins. Di city no get income, property, capital gain or labour taxes bot we go financed am only by a 10% sales tax.
As only half 4 di capital go be used to build dis “bitcoin infrastructure”, di oda half of di bond sale proceeds go be carry 2 pay a special “bitcoin dividend” to di bondholders, wch go significantly raise di final bond yield. Di plan na 2 use such capital go buy bitcoins 4 di market, hodl dem 4 five years, and den subsequently return part 4 di appreciation of dos to di investor across di last five years of di bonds in di form of an annual coupon payment wey dey financed by di sell of a corresponding amount 4 dos bitcoins.
Thirdly, di investor wey go buy more dan 100,000 USD of di bond go have di possibility 2 apply 4 El Salvador citizenship.
Di bond is meant for di full tokenised in a wholly digital form developed wit Blockstream. Dis go allow the decentralised exchange of di bond using di Liquid sidechain. Di bond wey u go buy dey possible in USD, BTC, and USDT, and, given di unique digital feature, d one wey u fit buy be 100 USD only. Dis feature go help “democratise access to di bond”.
If u wan talk about di mastaplan of El Salvador and di construction of di Bitcoin City, I go suggest you dis thread:
First Bitcoin City
2. The Bond details
Small Intel don show so far. Di only intel are dos revealed at such a conference and a few later interviews with Bitcoin entrepreneur Samson Mow, as President Nayib Bukele no go di press conference wey go give plenty Intel.
Di termsheet 4 di bond wey dey published 4 di presentation slide reads like dis:
According 2 di Termsheet
- Di bond go be issue in January 2022. E go be US dollar-denominated (USD don get legal tender in El Salvador) and with a potential size for 1 billion.
- Di bond go mature in 10 years, or January 2032 and go pay an annual coupon for 6.5%.
- After di five years, di bond go start selling di same amount 4 bitcoin a quarter. Di sale don spread over plenty quarters to minimise market impact.
- Di bond go start to dey pay an additional “bitcoin dividend”, after u don buy first bitcoin. Di bond go dey pay an additional coupon determine as di 50% for di potential bitcoin gain 4rm sellin di 20% 4 for bitcoin hold by di bond. If di proceeds for such sale produce a profit, dis go be shared disame part with investor.
- No forget say di bone go use only 50% for di money buy bitcoin. Den “bitcoin dividend” go dey pay investor 50% for di gain wey dey make for 50% investment.
For di example now, u go dey c all cash flow for bond, di way wey di bitcoin price dey for second row:
Spreadsheet
Blockstream, a Canadian blockchain solutions company, go help El Salvador to structure di bond, working in close connection over di last few months. In addition, di government go issue a few particular laws for Bitfinex actually to sell di bond:
Quote
El Salvador dey plan to form government securiti law and grant Bitfinex Securities licenses wey go process di bond issuance. Dis one go pave di way for oda Liquid security tokens like the Blockstream Mining Note (BMN) or Exordium (EXO) token wey go dey listed on a regulated El Salvadorian securities exchange.
E be like said dis one go take plenty time; providing di issuer and di operation arrangement for di legal framework witin wch to operate an incredibly demanding task. But, fot everything, dis one a di first experiment for many aspects to consider.
To watin sabi, dis bond go be first fully-fledged digital bond for di world. Di bond go be trade on Blockstream AMP, a platform used to issue, trade, and manage digital assets issued for di Liquid Network. Di trading activity go be entirely digital, 24/7 (weekends and bank holidays included den) over a blockchain (albeit a permissioned one) on a fully digital form: no be only di bond part for di trade go be digital, even di “purchase “ part go be full digital, through either fiat, BTC or stablecoins. This one go carry di costs down for both di issuer and investors.
Di actual trading go be done with the interface for Bitfinex, wch go provide onboarding, a matching engine, and order processing of di order and trade.
In this spreadsheet , you can find a copy of the termsheet.
3. El Salvador as an issuer in traditional finance
El Salvador get poor financial situation. Di country get CCC+ rating. Essentially, deir financial stability don rated as “junk”.
Dis matter com preclude di country 4rm accessing traditional financial markets, as many money managers wey no fit buy Junk Bonds and dos wey go fit ask for high premiums to do so.
El Salvador get few outstanding bonds:
As u c am, na only 12 bonds maturing 4rm 2023 up to 2052. No forget dat di US has over a few hundred available bonds to construct disame bond curve.
Di yield curve as follows:
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El Salvador Yield Curve: it's inverted; shorter maturities wey dey ask for higher yield.
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