President Bukele’s appearance at the closing event of El Salvador’s Bitcoin Week 2021 brought about not one, but two surprises. Following his announcement of Bitcoin City, the President invited Samson Mow on stage to introduce the El Salvador Bitcoin Bond aka “EBB1” or “Volcano Bond.”
El Salvador will seek to raise $1 billion via the issuance of EBB1 with more bonds planned in the future. The proceeds will be used to buy $500 million worth of bitcoin with the other $500 million going towards building out energy and bitcoin mining infrastructure. The bond will pay an annual coupon of 6.5% every January for its 10 year duration.
What makes this bond unique is the potential for an additional coupon that would come from distribution of potential profits from the bitcoin purchase. After an initial 5 year lock up, and assuming that the bitcoin purchased is then worth more than $500 million, El Salvador will begin selling a portion of the bitcoin with 50% of the proceeds from the sales being distributed as an additional coupon to holders of the bond. Modelling shared during the presentation included a scenario whereby a 35% annual increase in the price of bitcoin would result in a 146% APY in the final year of the bond.
The bond will be issued on the Liquid Network, a bitcoin side chain developed by Blockstream, and traded on cryptocurrency exchange Bitfinex who will also be the bookrunner. The bond can be purchased using USD, USDT, or BTC. Each unit of EBB1 will have a nominal value of $100 which is also the minimum subscription amount, making it very accessible to retail investors.
A path to El Salvadoran citizenship has also been proposed with investments in the bond of over $100,000 qualifying investors for citizenship-by-investment applications after a five year term.
A Tweet by Samson Mow in early December, only a few weeks following the announcement, suggested that investors had already verbally committed to purchases totalling $300m signalling strong demand for EBB1.