El Salvador's adoption of Bitcoin at the national level was the most revolutionary milestone of the year in the field of cryptocurrencies.
Using Bitcoin as legal tender seems ready to attract a wave of experimentation as well as investment, while a Bitcoin mining program with the use of volcanic energy could be a significant boost for a low-income economy.
However, the recently announced "Bitcoin Bond" of El Salvador may become the most global part of the project.
By selling Bitcoin-backed bonds through blockchain infrastructure, El Salvador will bypass Wall Street banks and international institutions that have held back lending to developing countries for centuries. There are signs that this could escalate into a full-blown public battle as global financiers seek to maintain control of the system.
Nevertheless, there are many questions about the functional details of the bond and many are unknown about its real impact.
Samson Mow, who is the Blockstream Chief Strategy Officer, acted as a consultant on the bond's design. The bond will be issued using Liquid, a bitcoin-based service created by Blockstream. However, Blockstream will not directly participate in the issuance, sale, or servicing of bonds that will be processed by the central bank of El Salvador and the Bitfinex cryptocurrency exchange.
Mow began contacting El Salvador through Strike CEO Jack Mallers, who is recently recognized by CoinDesk as one of the most influential people in the cryptocurrency space for helping to implement El Salvador's program.
According to Mow, he presented the idea of bonds for the first time before the June Bitcoin 2021 conference. But as the El Salvadorian government focused on expanding retail, the actual work on the bonds did not begin until October.
Despite the accelerated timing of the project, Mow was able to spend a lot of time in El Salvador and became disappointed with the Government of El Salvador due to strong pressure from government officials.
This sense of common purpose and commitment extended to Mow's interactions with various government agencies – not only with financial groups but also with those in the tourism, agriculture, and energy sectors.
In the end, Mow said he had developed three possible bond designs. One proposal was closer to a mining bond issued by Blockstream. Another proposal is a more traditional bond issued in the form of a crypto token. It was decided to agree with the initial proposal, which showed the yield of bonds with the dynamics of bitcoin prices over the next 10 years.
Strikingly, Mow said that there was almost no discussion about whether these bonds would be sold.
In early December, Mow said there are already commitments for the $ 300 million bond, which is still being finalized ahead of the 2022 launch. These are the whales of Bitfinex.
Bitfinex is very closely linked to tether, a dollar-denominated stablecoin that has been caught misrepresenting its reserves and accused of printing unsecured tokens. El Salvador will have to be vigilant about ensuring that it trades its assets for real US dollars or bitcoins needed to run its economy, and not for dubious synthetic US dollars.
For regulators and authorities outside of El Salvador, the role of Bitfinex is worrying for other reasons. The exchange has no history of strong anti-money laundering measures or other financial controls and operates under disparate regulatory oversight. El Salvador is a sovereign state and has the right to sell its bonds to anyone who is interested, theoretically leaving a very large corridor for money laundering or other abuses.
Ironically, Bitfenix does not officially serve US customers, which means that they are among those most likely to be barred from selling bonds.