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The Emergence of Bitcoin Native Bonds… And A “Bitcoin City”

Nayib Bukele is planning to use a $1 billion Bitcoin bond to fund a new municipality called “Bitcoin City.”

Author

CoinSnacks
November 24, 2021 • Estimated Reading Time: 3 minutes

Ambitious El Salvador president, Nayib Bukele, is planning to use a $1 billion Bitcoin bond to fund a new municipality called “Bitcoin City.”

Bukele envisions the municipality being circle-shaped, boasting a Bitcoin symbol in the middle that’s visible from aircraft… having various amenities including residential and commercial zones, bars and restaurants, an airport, a port, entertainment… being free of income, property, and capital gains taxes… and mining operations powered by geothermal energy from a… volcano. Got it?

Well, we’re right there with you. The project sounds a bit far-fetched. The idea of this kind of bond, however, is intriguing for many reasons…(more highlighted here).

How It Works

  • The bond will be split into two $500M tranches, one of which will go towards buying Bitcoin with a five-year lockup (Bukele will essentially market-buy $500 million in Bitcoin) and the other will go toward funding energy infrastructure and Bitcoin mining.

  • The bond will mature in 2032 and will boast a 6.5% coupon. Additionally, the bond has a dividend designed to give back half of the proceeds to investors after recovering the first $500 million in Bitcoin.

  • The Republic of El Salvador is the issuer of the bond, with Bitfinex Securities listed as the bookrunner. It will issue the bond on the Liquid Network, a Bitcoin sidechain. The presentation also lists USD, BTC, and USDT as currencies that can be used to purchase the bond.

Why This Is Actually Pretty Cool

  • If Bitcoin keeps going up, as it has since its existence, bondholders are in for a sweet return, or at least much better than the returns they’d receive from other types of bonds.

  • Taking it even further, the bond will be accessible to many more individuals as they will be able to buy partial shares with a minimum purchase of $100.

  • If this bond offering succeeds, we should expect to see many more bond offerings that use a proceed of the funds raised to purchase Bitcoin to create added yield for bondholders.