El Salvador plans to build the world's first so-called "Bitcoin City."
This is the moment when the country's President Nayib Bukele announced the news.
Date: November 20, 2021
The circular city will be built at the base of the Conchagua volcano in the country's easter region of La Union, where the geothermal energy will power bitcoin mining.
(President Nayib Bukele) "It is going to include everything: residential areas, commercial areas, services, museums, entertainment, bars, restaurants...everything devoted to bitcoin."
Bukele says the "Bitcoin city" will be built with money from a $1 billion bitcoin-backed bond.
Here's what we know about the proposed bond.
Bukele said El Salvador plans to issue the bond in 2022.
Half of the $1 billion sum would be converted to bitcoin;
the other half will be used for infrastructure and bitcoin mining.
Samson Mow is the chief strategy officer of blockchain technology Blockstream.
He was on stage with Bukele during the announcement and said the bonds will be U.S. dollar-denominated 10-year bonds.
They will also carry a coupon of 6.5%.
That is well below the 13.5% interest rate yield El Salvador's 10-year bonds are currently trading at.
More bitcoin-back bonds are also planned.
Mow said he expected other countries to do the same.
He also speculated that the moves would absorb enough bitcoin to push up the value of cryptocurrency. That would allow El Salvador to then pay off the bond with profits made from selling the bitcoin again.
Crypto exchange Bitfinex was listed as the book runner for the bond. The bonds will be sold in $100 tranches to - quote- "democratize access" to them.
They will be able to be traded 24/7 with other assets like stablecoins - another type of digital tokens. That's according to a blogpost from Blockstream.
There are a few things that we still don't know about the bitcoin-backed bond.
First, it is not known when exactly El Salvador would buy the $500 million worth of bitcoin it sees as crucial to the plan.
Second, the legal rights of would-be buyers have also not yet been detailed.
Most government bonds are strict legal contracts. That means the government is accountable if the debt is not repaid in full and on time.
It is also not known what would happen to the new bonds if the country defaulted on its existing traditional bonds.
The government's next bond deadline is an $800 million repayment due in January 2023. That bond is currently trading at a near 20% discount from its face value due to El Salvador's debt problems.
The International Monetary Fund, whose help El Salvador is expected to need to ease its problems, has not commented on the "Bitcoin City" bond plan.
Earlier in 2021, the IMF said it had both economic and legal concerns about El Salvador making bitcoin legal tender.