We Study Billionaires - The Investor’s Podcast Network - BTC054: A Sovereign Bitcoin Bond in El Salvador w/ Adam Back & Samson Mow (Bitcoin Podcast)

Episode Date: December 1, 2021

IN THIS EPISODE, YOU’LL LEARN: 01:10 - How did the coordination with El Salvador to create this bond come about? 01:10 - How is the bond backed? 02:55 - What's the terms of the issuance? 08:23 - What's the conservative return expected from the issuances? 12:33 - Why would someone buy this bond over just owning Bitcoin? 29:16 - How is citizenship incorporated into the bond? 36:46 - Where can a person buy it? 36:46 - How can they buy it? 46:26 - Sovereign competition for regulatory considerations. 52:08 - Bitcoin City in El Salvador. 58:28 - What's the liquidity going to be like? *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Adam Back's Twitter. Samson Mow's Twitter. Blockstream. Blockstream's Podcast. If you're new to the show and don't know where to begin listening, check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the podcast where we're talking about Bitcoin. Today's two guests are sure making a stir in the global economy lately. I have with me, Dr. Adam Back and Samson Mao here to talk about their big joint announcement they made with the country of El Salvador to issue the first sovereign bond that's backed by Bitcoin mining and a special Bitcoin coupon payment. During the show, we get into the specifics of the issuance, why it's unique, why someone

might be interested in buying this security over just owning Bitcoin, among many other topics. This one sure doesn't disappoint. So without further delay, let's get to it. You're listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right. So here I am with Samson Mao, Adam back. Like we said in the intro, guys, welcome to the show. Thanks, Preston. Thanks for having this on. Absolutely. So you guys were really creating a stir.

You know, Samson, you're down there in El Salvador, up on the stage with the president himself. Talk us through the lead up to this issuance. So I know Adam was on the show, you know, I don't know, a quarter ago, half a year ago, and we were talking about the Blockstream Mining Note and how this idea of issuing debt that's backed by hashing power was, in my opinion, a revolutionary idea. And so did El Salvador come knocking on your door? Did you guys go knocking on their door?

How did this play out and how did this take shape? So it's a long story. And I guess it starts from Jack Mallors when he started kicking things off with the Bitcoin law. So he made an introduction to us to the government. And we've been advising on a number of topics, things like cold storage, wallets, Bitcoin in general. but then we also proposed to do the Bitcoin bonds. But as that was a time when it was a bit busy, they had to pass the law, the Bitcoin law,

and then they had to deal with the Chivo launch. It kind of fell by the wayside. But after Chivo launch, we resumed discussions. And this has been months in the making, but we kind of nailed down all the bonds specifics, what we wanted to accomplish and how we wanted to do it. Bifnix came in, and they started also joining these discussions,

on the regulatory side and security side. And while I was down there in El Salvador, I met with the Minister of Finance and a few other people. And we kind of pulled it all together and then decided to announce it at the Field of Bit event at the beach. Unreal. And I mean, you guys did this fast. In my opinion, for them to roll, for them to pass the law, for them to roll out the wallet,

and then to roll this out just months later, I just can't imagine how much work was being done behind the scenes. Let's talk about the win for El Salvador. Let's go through each of the entities that would be involved in this issuance and describe why they have an incentive to participate in it. So the first person or the first entity I want to talk about is El Salvador itself. What do they, what's their capture in this? Well, they get to raise capital without any external agencies like the IMF or World Bank being involved. They can actually take advantage of that technology that everyone's been talking about for the past 10 plus years, you know, blockchain technology, and they can actually do a tokenized bond offering and cut out a lot of those

middlemen and intermediaries. So typically or historically, when someone does a bond issuance or raise, there are a number of people taking cut. So let's say you did a billion dollar bond precedent. You're not going to end up with a billion dollars. You're going to be paying a lot of banks and intermediaries. They're cut. And you'll end up with something at the end depending on how well you can negotiate it. The terms are largely going to be dictated by these global organizations that may not give you favorable terms and they might interfere with your local politics and, you know, basically infringe upon your sovereignty. But this way, it can all be done without that. And for El Salvador in this case, they can lower their cost of capital.

So historically, their bonds, they're averaging about 9, 9.5%. This would be reducing that cost of capital, right? They're paying a far lower coupon with 6.5%. They're also going to get every single dollar or every single set that people choose to invest, right? So there's no middleman taking cut. Bitfinance is not taking any cut. So if you invests $100, El Salvador gets $100.

And I think this is quite revolutionary, especially in bonds, because usually it's people feeding all the way down the food chain. I think something else to highlight here, and correct me if I'm wrong. So they get all those advantages for the raise. But then at the end of the 10-year period, here they are with all this infrastructure, all this mining hardware that's hooked up to geothermal energy that they're getting for free. and they get to continue to benefit through that hardware and that infrastructure for in the perpetuity or until the hardware fails and they have to go do another round or whatever it might be. So, I mean, that's crazy to me that they're able to pull something like that off and build something out.

If I'm correct, it's $500 million is how much hardware they're purchasing. Right. So the first bond, the volcano bond, is $500 million for infrastructure. and 500 million for buying Bitcoin. And I think a lot of people focused on the 500 million that will buy Bitcoin, thinking Bitcoin's got to go up a number of times before they can repay or pay the coupon even. But they're forgetting that El Salvador is going to have half a billion dollars of infrastructure after this. And that is directly going to build up their country.

They can tap into those geothermal wells and build up more volcano mines. If they have excess power, they can sell that power to, neighboring countries. They're going to be mining Bitcoin constantly throughout that 10-year period. And this is just one bond. If they do a few more bonds, they could have a large stockpile of Bitcoin, not from the bonds, not from buying Bitcoin for the bonds, but also mining Bitcoin. So I think there's a lot more at play here than people realize. Yeah. For context, the amount of conventional bonds they have outstanding at the moment is around 8.2 billion plus another one billion loans. So, you know, depending on the Bitcoin price

trajectory, you know, we've looked at the median of the last seven years in the modeling, which is about 35%. That would see, you know, past as no predictor of the future, but people involved with Bitcoin find that to be a reasonably conservative member. Ten years is a very long time in Bitcoin. And that would put a 10-year exit price there, $1.2 million, Bitcoin. And, you know, so you could see that between Bitcoin mining, Bitcoin price appreciation, potentially above that level, even we have to see how it plays out, they could potentially basically wipe out their sovereign debt over the course of a period like that, maybe across a few bonds, and, you know, build all kinds of infrastructure for the country and improve the, you know,

infrastructure, per capita, all of the economic wealth metrics, basically, for the country. And that's based on the 35% median growth rate of Bitcoin that you guys used in your forecasting. So we used all like a range. So we used 5%, 10%, although it's 35%, just to look at different potential paths. And geometric. Yeah. So me personally, I think 35% sounds extremely conservative. I'm obviously a Bitcoin bull here. I know when I'm looking at projections for my own personal position, I'm not necessarily using the median to do the calculation. I'm using a compound annual growth rate. And I like to choose any four-year period because of the four-year halving cycle that's built into the protocol. When I do those numbers, I get numbers. And I'm not trying to, uh, I'm not trying to oversell something. I know you guys are trying to come up with conservative estimates in here.

I am kind of blowing them out. But, I mean, these numbers are a triple digit returns when you do a compound annual growth rate of Bitcoin over any four-year period you select. I don't care what it is. Pick the date and then go four years, you know, to the right of whatever that is and do a compound annual growth rate in your triple digits every single time no matter what. Well, I think within the five-year, at the five-year mark, which is when the bond lockup ends, I think Bitcoin will be a million. or so at that time. So in a few quarters, they should be able to recoup the initial 500 million that was used to buy the Bitcoin.

And then start sharing that upside with the bondholders. So talk to us about that structure. So we talked a little bit about how El Salvador really benefits from this. You're starting to get into if somebody's going to buy the note and we can get into the reasons why they might buy that versus Bitcoin. But talk to this point that you're talking about right now, that's part of the terms of owning it, which is once they get their 500 million back, they then start providing a special coupon. Is that how you would term it?

Yeah. So I think after the five-year period, after the five-year lockup is done, Bitcoin should be at a much higher level than it was when they first bought the Bitcoin. We modeled it out at 60K. So, you know, if it's a million dollars at the five-year mark, that's great. But it should be higher than 60K after five years, unless something's wrong with Bitcoin. But at that point, they will start selling off. So the goal is that they would first sell off enough to recoup their $500 million.

And once they've got that first $500 million down, they will start to share the Bitcoin upside with the bondholders in what's called the Bitcoin dividend. So basically, they'll sell off every quarter, a certain amount of coins. And then you as a bondholder would get half of those coins. So in more detail, basically they are doing the reverse of dollar cost average buying, which they're doing dollar cost average selling. So at the five year mark, there are 20 quarters left until the 10 year mark. And so every quarter, they're going to sell 1.20th of the Bitcoin. Now, they may keep their half of it because, you know, they don't have to pay that out. That's the country's Bitcoin.

And once they've recouped the 500 million, as Samsung was saying, you know, however many quarters that takes, then they start paying half of that to the bondholder. But the Bitcoin bonus dividend is paid out annually in the Jopoldo in January. So there was like as many as five Bitcoin bonus dividends. But calculate it quarterly paid annually. So you get the 6.5. coupon throughout the whole 10-year period. But for the final five years, you'll get added Bitcoin dividend.

And if you follow the 35-year-over-year model, then I think you'd get 90%. So it'd be 90 plus 6.5 in that 10th year. And then if you go with the higher one, then 40%, then I think it's like 140% plus 6.5 in that 10th year. So the 10th year will be very nice for all the holders of the bond that actually, be held for 10 years. And of course it will average out, right, because, you know, looking at Bitcoin's price history, some years are good, some years are bad.

So, you know, maybe your bonus, your dividend will be higher in year eight, lower in your nine, higher in year 10, so forth. We'd have to see how it works. Now, Samson, I heard an interview where you were on Bloomberg, and the very first question, which I think is a really good question was, well, why not just phone? why does a person not just go out and buy Bitcoin? Why would they want to buy this when they're getting half as much Bitcoin in it? And I know the answer, but I want you to explain this answer to our audience why somebody would own this.

Right. So the bond is going to be different things to different people. To a Bitcoin hoddler, maybe they don't want to buy it. Maybe they just want to hoddle Bitcoin forever. And that's okay. But maybe you're a Bitcoin hodler and you want to get permanent residence in El Salvador and work your way towards citizenship. Well, you can look at the bond as a 25 plus percent discount off of that permanent residence, right? Otherwise, you would need to sell your Bitcoin for dollars, like effectively to get the PR.

But with the bond, it's simpler, more straightforward. You kind of roll up the PR with a investment vehicle. If you're an institution, then maybe you cannot buy Bitcoin. That's a bottleneck for a lot of big players in the space. they simply cannot do to their charters or mandates buy Bitcoin. And that's why everyone's clamoring for a Bitcoin ETF, specifically a spot ETF, because they can buy that. But those people could buy the bond.

And then you have the traditional investors in the bond markets that will just look at this purely from a bond standpoint and say, okay, the yield on this thing is great. And they would just buy that because they're just comparing, you know, this bond to another bond, maybe a U.S. Treasury note for 1.5%. and this looks incredibly attractive. But there's this a number of reasons why people would buy it, and it largely depends on how they view this instrument. But it can be viewed from a number of different angles.

You can even look at this as a central bank digital currency in a way, right? It'll be a crypto token that is going to be issued by a central bank, and it has Bitcoin backing. So it's sort of like a CBDC bitten by a radioactive spider. You can look at it also in that light. Yeah, I was going to say that another type of buyer, you do see people, individuals who are interested in, you know, read about Bitcoin, philosophically interested to get some exposure, but they're conservative and they see, you know, big macro volatility year to year, and they feel they can't handle that, you know, and that's an alternative where other people do it the other way around. They buy and then they, you know, they sell, they panic sell in a big drop and they lose money. And maybe they come back later. So effectively, this is, this bond acts a bit like a capital protected structured

product. So if people are not familiar with those things, they are typically a kind of three-year term product. This is obviously much longer. And you put doors or, you know, if you're currency into it, you get some kind of defined economic outcome. You know, if this stock index exceeds this level by this date, you get. you know, this insurance premium, maybe some fairly high interest rate, and if it doesn't,

you know, you just get your money back. So the punchline is you get this potential upside or if that doesn't work out, you get your money back. So it's a kind of money back once they guarantee because, you know, there are typically, and the way these things are typically constructed is they'll set aside, you know, maybe 85, 90% of the capital, buy zero coupon bonds with it to rebuild to the 100%, and then they'll do something highly leveraged with the 10 or 15% left to get your defined outcome. So this is not constructed in that way, but it has a similar property, which is, you know, other than the default risk, which arguably the Bitcoin component improves, you put money into it, you should get the money out at maturity plus a 6.5% coupon

and some Bitcoin upside, right? So, you know, I've seen in the money, you know, I've seen in In the Twitter comments, and there are lots of interesting questions, people saying, well, why wouldn't you just buy Bitcoin? Well, the answer is you get a kind of money back assurance, modular default risk, plus a coupon, plus some Bitcoin upside. And so if you are a potential Bitcoin buyer, or if you have friends who would be potential Bitcoin buyers but don't like the volatility, this is a way to get some upside and a pretty attractive interest rate, and arguably the Bitcoin part reduces the default risk on the bond. And the default risk on some lower credit rating sovereigns is, you know, implied to be pretty high.

You can imply that by the implied interest rate from the current bond price. Another buyer is actually maybe the same profile that we have for the BMN. So we discussed the BMN on your show before Preston, but that's the Blockstream Mining note. So you're effectively buying hash rate. It's a securitized hash rate. But we also have large whales that are overweight in Bitcoin. And they want to de-risk a little bit of their portfolio, but still have that Bitcoin exposure. So one way they do that is to buy the BMN, and then they can get back their Bitcoin

effectively at the end of the three-year BMN term. But this could also work in a similar way. If you're a Bitcoin whale and you have thousands of coins, you can de-risk a little bit. by buying this bond and you can still have that Bitcoin appreciation or special dividend at the after the five year mark. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every

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deals that convert into common stock like he was before for obvious reasons. But I see this as being a very similar audience where you've got somebody who's chartered with a fixed income charter and they're saying that was literally the best bond issue last year, the best performing bond issue on the entire global market based on performance, right, because of the convertibility piece to it. And I kind of, you know, I suspect, and I'm very biased as to what I think Bitcoin's going to do. But I suspect that you guys might have something very similar on your hands here that as time marches on in your five years down the road, people are going to look back at this issuance and you guys are issuing it at a yield, the coupon on at 6.5%. I think you're going to have such a

massive premium to own these things for the rest of the mature, for the next, the next five years, that the price is going to give you an effective yield of 1% on these bonds. Time's going to obviously tell. But the people, going back to my original point, which was the audience, who is going to be buying these things? There's going to be people that are chartered, have a fixed income charter, and that's all they can buy, but they want access to Bitcoin, just like Michael Saylor's buyers wanted to access to Bitcoin in some indirect kind of way.

Do you guys agree with this? Yeah, I mean, I think there's a couple of things here. One is this is a new type of vehicle for accessing Bitcoin. Aside from owning physical Bitcoin, the options have been public companies with Bitcoin a balance sheet, micro strategy being the most famous and a concentrated version of that, I guess. Another type being public mining stocks that are prop mining or hosting variants of that. And now this bond, which also packages in this different format, as you said, as a bond.

And I think the other interesting thing is it's a different audience. So funds that buy stocks are potentially a different audience to funds that buy bonds. And the bond market is so up is very large. It's over $100 trillion. So if even 1% of that audience decides that they would like some higher interest or to have some Bitcoin upside. That's essentially, you know, market impactful move. There's also the segment, which is ideological, right? Bitcoiners that want to support El Salvador. Well, a lot of people want to do it, but there's no easy way to do it, right? Like, how do you do that? This is a very simple vehicle just by the bond

and you're directly supporting the development and infrastructure buildout of El Salvador from the ground up. And I think that's a really attractive proposition. It's just making it so simple to do. I think we're at about 100 plus million in commitments just from the Bitcoin and cryptocurrency crowd here. And we haven't even released the formal prospectus of the bond yet. But there's a lot of money that will come in just for ideological reasons. But going back to your earlier point, like there is a lot of money, people that are buying mining stocks as a proxy for Bitcoin exposure, buying micro strategy, companies that have

Bitcoin on the balance sheet, both private and publicly disclosed. You know, that's like $85 billion-ish right there. And I think there's a massive influx of capital waiting to come in that has no good vehicle to enter into this market. But one thing that you talk about Preston a lot is, you know, people, Bitcoiners should be looking at the bond market. It's $100 trillion, maybe $200 trillion market. Amen. You know, I don't think like there's a lot of Bitcoiners that are focused on hoddling, but it's important to step back and look at the bigger picture.

One of the things that we've tried to do at Blockstream is imagine building the future of finance on top of Bitcoin. And doing that is like hitting securities, like tokenized securities like the BMN, like Exo. and the bond market. That's just right for disruption. And I think this is that first step to tackle. Yeah. Right. I mean, I think part of what makes it an interesting moment

in history to approach the bond market is the yield situation. So basically, most of the bonds in existence are paying implied yields below inflation, and in many cases, actually literally negative interest. So people have a pressure to seek yield anyway, any way they can, and we'll start to look at slightly more adventurous things. And so this is a potential avenue for the appetite, and it's likely repeatable for, you know,

El Salvador itself. And, of course, there are many countries that issue these kinds of bonds as well. And, you know, this one, the issue is El Salvador, the government. Blockstream is just technology provider and advisor. and BitFinex is the bookmaker, but there's no reason that other, you know, more conventional bookmakers or underwriters couldn't participate in similar things and expand it. Because, you know, I think, as Samson said, the Bitcoin user base has in the past raised, you know, order of billion dollars to buy effectively a BitFinex bond in the space of 10 days, right? So I think,

think this is easily achievable, but potentially the more interesting aspect is to, you know, slightly orange pill the yield-starved bond market, which is, you know, a hundred times Bitcoin's market cap, right? Yield star might, yeah, Yield starve might be the understatement of the year, Adam. You know, I've been running around saying there's not a single bond on the planet that has a positive yield in real terms. Well, this one has a positive yield by 25 basis points. You guys are the only ones that I know of that's coming out right now that does have a slight real yield. But when you're accounting for the special coupon that's associated with this, boy,

oh boy, you're going to get some people's attention. Samson, you had briefly mentioned about the citizenship piece to this, which I find really interesting. Talk to us about how that would work or how you think it would work once it finally is issued. Right. I saw a lot of people asking on Twitter too. So I think there was a slide up on screen that was an old slide when I was on stage with El Presente. But it actually is not citizenship. It's permanent residence and then you can work towards the citizenship. Okay. But one of the key things with our bond proposal is we wanted to tie the two together. You know, you can buy, I don't know, a condo in Bitcoin City and you could work towards

PR that way. But I think the bond offering is a simpler vehicle for a lot of people. You know, you don't have to deal with any paperwork of buying a physical property. You could just invest. And I think at the time when they announced the PR citizenship path through investment, they put it at 3BTC. But I think the numbers have been fluctuating based on BCC. Bitcoin price. But so far, to my knowledge, it is still denominated in Bitcoin. And I think we could do with some clarity on that front. I don't really know exactly what the final arrangement is, but I do know that the goal is to tie the two things. So bond investment and then PR working towards that citizenship. And I think it's a very attractive thing for people in the current

world climate. People are looking for better places to go where they'll be treated better. So not only from the citizens standpoint, the individual standpoint, let's talk about the company standpoint. So block string, not based in El Salvador. I don't know of any Bitcoin company that's based in El Salvador. But I would imagine there is a massive incentive brewing for companies to consider relocation or to stand up and then make it an operational. subsidiary of the of the business, maybe you sweep funds lower or whatever, right? What are you guys hearing on that front? How are you guys thinking about that?

I mean, you guys are a billion dollar company. How do you guys think about this? Adam, you want to take it? Yeah, I mean, we're a pre-existing company and, you know, we have looked at what it would take to relocate a company. I think a challenge is that can create a tax event. for existing shareholders depending on their jurisdiction. But certainly for

like client funds operating companies like exchanges particularly, hedge funds, and we have a number of offshore subsidiaries for various purposes like the Blockstream Finance Division has some incorporations.

And, you know, those types of funds are often offshore anyway. They are looking for a jurisdiction with respected financial regulations, some clarity that they can operate their kind of business. Of course, it's all global, so you have to fit in with where the clients are as well. But a lot of crypto exchanges are incorporated in BPI, KEMNs, Hong Kong, Singapore. It's very global. So, you know, and I think there is an interest at the moment to bridge, you know, to bring

the blockchain world into the securities and equities world. And so, you know, hence the security token initiative. So we've been pretty early in that with the block stream mining note, block stream AMP. And so there are a number of exchanges at the moment working on security token framework so that they can sell securities. So there's the BitFenex announcement a while ago about them preparing to list the blockstream mining note. And so that requires regulatory work. So you can imagine that a number of exchanges might be interested in a forward-thinking friendly jurisdiction as a show-in for BVI or some of the other jurisdictions on table at the moment.

have you have you in el salvador right now there i know that bit refill has set up an office there and an entity i think uh paxful has also set up down there and then galloy the organizer of the adopting bitcoin conference so bitcoin companies are already moving to al salvador but that just brings me to another topic that we should touch on which is the part of the announcement which i think a lot people missed was the securities law that we mentioned that Bifenex is working on with the government of El Salvador and us advising. But that is actually a very big game changer. So to do the bond offering, they're going to pass this new securities law. And this would allow them to issue the license to do that bond issuance to BidFenex. The BidFenex will be the first one. But that actually is a very big step,

creating modern digital securities laws that will be attractive to people, not overbearing and not outdated, that could potentially bring a lot more business to El Salvador. I talked to another crypto exchange yesterday and they're interested in being regulated out of El Salvador. And I think this opens a door to nation state competition, not just for Bitcoin, but to Bitcoin companies, where they can provide this attractive regulatory framework and provide the right business conditions. If you look at Bitcoin City, you know, it's 0% tax, 0% property tax, 0% payroll tax, blah, blah, cap gains tax, zero. You know, these are very favorable conditions for doing business.

And I think we kind of lost that element in the world. But this could kick off a war for business. And that is good for business because you're going to get countries that are going to try to open the doors and be conductive. But potentially this could trigger, if El Salvador is. is the first one, that will give them a big advantage. And it could trigger them becoming the new financial center of the world, much like Singapore managed to do that in the past. So let me dig into this more. So I think this is a really big deal, what you're talking about here with the securities law, because right now the plan is for you guys to go to Stalker. Is that correct in order to conduct

this issuance of the tokens, of these bond tokens that are going to then go on the liquid network. and if El Salvador had a securities law in place, you could just go on to BitFinex, create the token there, and you're pretty much in compliance with the creation of the bond tokens. Is that correct? Yeah, so Stoker is kind of the party we're using to handle a lot of the legalities out of Luxembourg, because it is a Luxembourg securitization vehicle. The cool thing about Luxembourg is the chain, like the liquid chain, is actually the record of transfer, which is not the same everywhere else. That's a unique thing of Luxembourg.

But in El Salvador, the issuer is El Salvador. And if BitFenex is licensed to be a securities exchange there, then it's a very straightforward process. There's no need for any intermediary. So now if I am on the BitFinex exchange and I'm anywhere in the world that supports that BitFinex is conducting business, I can now buy those tokens, which were issued out of El Salvador, but with no friction because it's being listed on the exchange, just like any other crypto token for the most part. But it's an actual security that's gone through security law out of

El Salvador. Correct. And it could be accessible. Like right now, BitFenance does not serve the U.S. market. But a U.S. broker dealer could potentially offer it. If they can get the tokens from Biffinx, then they could sell to their user base in the U.S. Yes. So this is what's different about you guys. You guys actually follow the loss. Yeah, we try. Compared to a lot of other different quote unquote projects that are out there. And I mean, it's another person who's listening to this is going to make the argument, well, there's not clarity. There's no, there's nothing saying we can't do these things right now until maybe the SEC comes out and starts regulating things and puts out much clearer guidance. And you know what? I can buy that and agree with that. I just don't think that

some folks that are maybe, do I call it investing in some of these other projects, have an appreciation for how quickly or how swiftly something like that might come down the pipe. So that leads me to my next question. What do you guys think is coming down the pipe from a regulatory standpoint here, specifically in the United States, from what you're hearing? Adam? So I think the current regulations are not that clear. And so for example, the lack of a spot Bitcoin ETF seems pretty anachronistic. There are all kinds of arguments. presented, but basically the futures ETFs, which they have allowed, are relying on the very same price feeds that they're arguing for the surveillance and the quality of the venues and

so forth as to not have a spot price. So there's a US senator that wrote a letter to the SEC basically saying it doesn't make a lot sense, would you care to elaborate? So, you know, there's some anachronisms still a lot of in clarity about what exactly is considered to be a security. You know, I think that people have been pretty clear that Bitcoin is not security because it was decentralized from the start. There was no kind of how we test like aspect to it whatsoever, but I'm not sure. Like it seems like the rest of it is a bit of an open question. So I think it's creating a lot of employment for, you know, legal advisors to various

post, the current, you know, sort of ICO related or pre-mined coins and things like that with management teams and CEOs and selling internationally. So I don't know, you know, we'll see, we'll see how that plays out. But that's one area. See you see a bit of discussion about stable coin sites. basically, I think is the main concern. Yeah. Yeah.

You know, I'm talking about the Fiat-backed staple coins, not the Algo Stable coins, which I think are probably more risky. So the Fiat-Backed ones are typically placing the raised funds in money markets or commercial paper and bank deposits and things like that. But in aggregate, it's over $100 billion. So the regulators in the US are starting to realize. So that's quite a significant proportion of those markets. If there was a sudden withdrawal of too many billion dollars on one day,

that could actually impact liquidity in those markets and flow through to other uses of those markets. So, you know, that concern is just a kind of stability argument. And so I see they have been talking about, you know, whether stable claims should be subject to, some more bank-like, I guess, requirements on sort of stability assurances and, you know, all of the things that go into a bank being able to meet its demands and also benefit from the central bank implicit underwriting if they fail, right, which a stable coin doesn't have. So, of course, the bank has a completely different set of risks, which is they are explicitly fractional to a massive degree where, you know, I think the stable coin,

are, you know, all the funds are there in money markets and things like that. So there's no direct fractionality, basically. But they have a liquidity, you know, a potential for sort of duration mismatch, right? Because they'll have very short-term things, longer-term things. And banks struggle with that kind of thing all the time as well. And they'll have, you know, short-term lending to Bridget. And I'm sure the stable coin guys are, you know, they're professional at managing a pretty sophisticated operation that you don't manage 60, 70 billion dollars worth of assets without

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And from the context of let's fast forward three years into the future, how, what would be the impact if a BitFinex or any others? start setting up shop inside of El Salvador. You talked a little bit about the competition that would take place, but described to us like the world as you would see it in two to four years from now if the securities law does get passed through in El Salvador. And now you have this easily copy paste template in place for all the other nation states that have energy, geothermal energy, whatever it might be, natural sources in their country. They, um, I, um, I, um, It's a similar setup as El Salvador, I guess is what I'm getting at.

Yeah, so the great thing about having this new modern securities law is that it should, in theory, kick off competition for clients, you know, crypto exchanges or Bitcoin businesses and the like. So it kind of reduces the impact or it might influence in a positive light the regulations in the U.S., right, because now you've got to compete for business. So I could see, if done right, this drawing all the major exchanges to El Salvador, you know, you look at historically, where are all the big bank headquarters? They're usually in capitals of big financial centers.

You know, you have the HSBC buildings and the JPMorgan buildings and whatnot. You could have, you know, all these different exchange towers and headquarters in El Salvador, in San Salvador, right? You'd have the BitFinex tower, the Bitmex tower, the OK coin tower, etc, etc, right? Or Binance tower, right? But this could be the big thing. This could be the last domino that puts that into place, just having this competition for better regulations. And even within the US, it's even fragmented because with the bid license, right?

Krakken and a number of businesses just vacated New York because they can't do business there. But I think if you have a country willing to do business, business will come. Yeah. I mean, I think there's an interesting analogy to make for the, you know, the adoption of oil, petrol, diesel in fossil fuels and sort of discovery that you could make combustion engines and that could be, you know, started kicked off the Industrial Revolution basically. So countries that were previously resource poor suddenly realized they were literally sitting on the oil well and that was you know black gold right. So this is a potentially a new shift which is if you have you know very efficient power sources like a lot of solar power geothermal from volcanoes, you can do sovereign Bitcoin mining, which is what El Salvador is already doing and plans to do more of.

So, and then if you look at, you know, another oil-related example, the Emirate in the UAE of Dubai ran out of oil. You know, they fully tapped out their oil in that area of the country, I think in the 60s or 70s. and, you know, trying to decide what to do about that because that was their source of prosperity, they embarked on a massive civil engineering initiative to build a modern city of Dubai, which is a pretty impressive collection of civil engineering, artificial islands, skyscrapers, all kinds of very glitzy modern stuff. And so, you know, that was funded in a particular way, but I think the Bitcoin city has a potential to do something like that, which is a kind of, you know, if you build things in a modern, forward-looking way, you can attract massive amounts of outside

inbound investment, which is what happened with Dubai. And Dubai is also a very low tax jurisdiction, but they had a formula for ensuring the government got some stake in the upside because it was a government, you know, partly government owned Dubai Investment Corporation that's doing a construction. So if you build, you know, the infrastructure for a new city, the government owns what was previously almost worthless land into, you know, a multi-billion dollar real estate holding company that's sovereign owned, right? And then you can sell that or co-develop it with industry and bring inbound investment and create a nice, you know, improve the living standard in the country, bring outside investment, bring more business locally. And I think the

other thing that's kind of coincidentally helping at the moment is more more people are going remote. People are working remotely anyway. That enables more people to, you know, work from an Airbnb in another country. Location becomes blurred, the prospect of, you know, upping sticks from, you know, San Francisco, Chicago, wherever people are at the moment. And, you know, half of the company moving to Bitcoin City, El Salvador, maybe that's not just a big deal anymore if the tax incentives are right and so forth. Yeah. Your choice is really, uh, stay in the U.S. and get taxed on your unrealized gains or go to El Salvador. Not yet.

Not yet. Not yet. Not yet. Not yet, right? Not yet. But it's coming. Oh, boy, is that scary. Hey, so in the announcement, there was this idea of this Bitcoin City that was brought up.

You hit on it a little bit earlier. Did this kind of, because I think people saw the announcement and they thought that it was going to be funded through this, mining note or the mining bond that was that you guys are working on these are two separate things correct and kind of talk to us about what the bitcoin city was all about with the announcement yeah so bitcoin city is a new city built on the east side of al savador and it will have its own airport you know commercial residential it'll be built next to the con chagwa volcano and you know powered by geothermal and it's basically a brand new city from the ground up and it's going to be like we talked about earlier a zero tax on basically everything just a vat tax and i think

like adam is saying this could become something like dubai like a new mega city in metropolis but um it's a going to be an interesting draw i think like for bitcoiners and companies just to go and set up there it's just a very attractive proposition and with the Bitcoin as legal tender and everything, that I think is just opening the doors for commerce, right? Like the success of the Asian Tigers is really they were open to commerce. They're open to business. They're open to capital influx.

Whereas in Hong Kong these days, you see it starting to close off. It's harder and harder to even get a bank account in Hong Kong if you're a new company just setting up just because of all the regulation and increased compliance and monitoring of transactions. So I think the key here is that El Salvador is embracing Bitcoin. They're embracing sound money. And they appreciate that you need money and you need talent to have prosperity. It's difficult to squeeze blood out of a stone, right?

Like in the U.S., you're trying to tax unrealized capital gains. You're trying to squeeze that blood from the stone. I don't think it's sustainable or practical. But they want smart people to go and move to Bitcoin City, get PR there, and work towards citizenship, invest, build, make money, and be prosperous. And I think for some reason, that whole mentality is lost to a lot of the world. And I hope that it does successfully take off. What time frame are they thinking for this?

I think it's a long-term plan. It is meant to be a big city. It's not like a little beach resort or town, right? So I would say, you know, it's like a five to ten year project. But things do happen very quickly in El Salvador, as we saw, with the Bitcoin law, with their recent development projects, they're able to move things and get them going very fast.

And I think the first, actually, let's go back to your first question. The first bond that we announced, the EBB1, El Salvador Bitcoin Bond 1, was earmarked for infrastructure, energy. So potentially it could be building that geothermal plant on the, on the Conchagua volcano.

But the next bonds, and there will be more bonds, we kind of hinted at that in the announcement, would be to fund Bitcoin So EBB2 to 10 potentially could be to fund that development of that city. So they have, I saw in the announcement, estimated the civil engineering to cost 17 billion. So how many bonds they actually have to issue to achieve that depends on a Bitcoin price trajectory rate.

So as it's a long-term project, you know, the capital requirements are spaced out of its time. So that seems, you know, a plausible approach. I would suspect that a fixed, a U.S. based fixed income chartered fund would have a difficult time purchasing this issuance. I think that the, you know, because the issuer is a sovereign, it's a little different, right? Usually the issuer is a company, like in a case of the BN1, that was Blockstream. And so then there are securities rules around that. But a sovereign is, you know, it can approximately write the rules. So it's just down to the ability of, you know, qualifying investors, institutions globally to buy them.

So other than the, you know, tokenization provider around it, it's ultimately a bond. You know, you know, this kind of bond is typically issued international in a similar way. So, you know, there will be an underwriting bank. they will you know, buy it and resell it for their margin or guarantee some aspects about the sale and take a cut for doing that.

And, you know, it's international. So I think so long as that form factor is adhered to that it would be, you know, viable. But that is really a, you know, a specialist question. So, you know, people would have to talk to the... So you're thinking it's more of the fund,

the size of the fund, the access that they have to other markets and just how well they're... Yeah, I mean, you know, the 100 trillion plus of this kind of instrument in the market, I have to think, is mostly held by big funds, right? And internationally, I think it's a global market. The issuers are different sovereigns, large companies, and so forth. And the buyers are also international, sovereign wealth firms, pension firms, etc. So I think it's already pretty global. So, and I, you know, I'm sure that US funds buy, you know, funds from all over the place.

It's really for them to figure out if they can buy it. Yeah. You saw when I was on Bloomberg, the host was adamant that you can't buy these bonds. There's Bitcoin in it, right? But these are just normal bonds. There's a little bit of a Trojan horse element, but they are normal bonds. And it's really up to the investors to determine if they can buy it or not. If they can't, then it's their loss.

But if they really want to buy an interesting product with a very high yield, they will figure out a way. The thing that I find fascinating about this is just the liquidity of it. So these are being issued on the liquid protocol. And for all intents of purposes, if an owner wants to sell their token with another counterparty, and they want to do it at 2 a.m. on a Saturday night, they can do it. Right? This is different than pretty much every fixed income instrument on the planet, correct? That's the plan.

That's the plan from day one to bring liquidity to bond markets. Traditionally, bonds are not that liquid. They're trading on traditional exchanges. I think El Salvador has one that's traded on Luxembourg Stock Exchange, but much like any other traditional exchange, you're limited to no trading on bank holidays, There's no weekends, you know, it's a fixed amount of hours a day. But if you look at Bitcoin, you know, in the U.S., I think we've accumulated, accumulated 50 years of trading history.

If you look at Taiwan, Bitcoin's accumulated 80 years of trading history just because it's 24-7-365, right? So these things are a major game changer in another way that I don't think people have understood yet. First of all, it's on the liquid network. If you're whitelisted and you've gone through the process to be whitelisted and can trade it, Much like the BMN, you could trade it OTC. We have people trading the BMN in a telegram channel, and it's just people buying and selling all day long. It's the same thing.

Nobody will be able to stop the trading of these, even if it's listed on Bifnix and they have downtime, or if it's listed on another crypto exchange and there's downtime, people can still trade this outside of that system. It's just unstoppable. How does the registration for something like that work? They have to know who holds the token, correct? So if I'm going to sell it to somebody, you have to register on to complete the transaction. How does that work? So the way BlockTream AMP works is it's a multi-signature under the hood.

And so as a user experience, basically you set up a what looks like a Bitcoin wallet and it has a liquid wallet option in it. And then you sign up for stocker, which is like signing up for a bank account or an exchange account or what have you. They're going to ask you for various KYC. If that checks out and you're in a jurisdiction they support, then you basically sort of connect it with your wallet. And now the wallet knows that your whitelisted, but the wallet and blockstream's kind of infrastructure behind a wallet doesn't know your identity that's retained by Stoker. So Stoker is, you know, managing the share registration agent and the KOC. And whenever, and then after that, you can transfer peer to pair.

So you could, you know, deposit from your wallet into an exchange, withdraw from an exchange into your wallet, transfer, gift, sell, lend, whatever you want, per to peer, right? Because, and the wallet will only allow you to transfer if both, you know, if the recipient is set up, basically. So that's the experience. Yeah. So there will be a massive pool of liquidity for this because don't forget,

it is a bond, but it's also a crypto token on the liquid network, right? So you're going to be trading on exchanges 24-7. You're going to be able to trade OTC. But there's an additional demand too. Like people right now, when they're trading Bitcoin, they often sit in stable coins. Well, instead of sitting in a stable, you could sit in a bond, right? Or you could just buy the bond and use that as trading collateral to do margin trading. But there's a whole world that is opened up to people that hold bonds now just because it has these new unique properties as a

of no token. It immediately clears and it's 24-7 all days of the year. And I think that that's the that's the really big breakthrough for securities that is coming and for you guys is already there. And I think this is where you get into maybe a cultural fight on Twitter and we see it all the time where part of the community thinks that nothing should be registered and that it's Nobody's business, whether I want to own part of this company and, you know, buzz off. And I should be able to trade it to whoever I want, whenever I want in whatever jurisdiction. And, you know, I'm not going to say that that's wrong, right? Like, that's a, that's a best case scenario as far as I'm concerned if we could ever get to that.

I'm just suspect as to whether we can get to that, at least in the short term, right, in the next five to ten years. I think the regulators are coming, and I think they're coming in, and it doesn't mean that we just roll over, right? I think we need to like really kind of go to battle with what the end state would be, which is this world where people can just exchange all these things. But when I look at the direction block streams going, I think you guys are going in the direction where you're expecting the regulators, you're doing things according to securities law. You're viewing these as securities, which they are. And you're just moving out in that. direction and it's different than the approach of a lot of others that are treating it just like the Wild Wall Western, like, hey, screw you, we're going to do whatever we want and we don't care what the laws say. Right. Yeah, I mean, historically, there's been a bit of a, you know, the attempts of projects that have tried to say that they're not securities or that they reject and don't care about

securities law. The side effect has typically been highly defective in. investment contract that plus or minus says you're making a donation. And even if the project succeeds, you're not due for any share of the upside. You have no equity, interest, et cetera. So while the philosophical point is something that's attractive that the world should be a free of place, the result of trying to avoid the security regulations means that the user gets an extremely bad deal and there's very little investment oversight.

So most such projects have been extremely poor investments or not produce the products, basically. The success rates being terrible. So in principle, it could work. Somebody could do the right thing despite there being no useful contract, but empirically, that hasn't really worked out. So I don't know. That's kind of an unfortunate statistic. You know, one would hope for better, but that is what it is.

So in any case, I think that, you know, Bitcoin is the, is interesting, bearer asset, and that really, you know, isn't a security. It's a digital commodity. And just pragmatically, you can get, you know, a lot of very interesting innovation while adhering to current regulations, which are, you know, ultimately about consumer protection even though they're imperfect. And so, you know, as an example, the fact that you can peer-to-peer transfer some various kinds of security and bonds any time of day in various increments is interesting. And then you can use smart contracts on top of it. So, for example,

there's a wallet on liquids. That's another company called Sideswop. And they have, you know, and with that, you can do a trussle swap. So that kind of a tonic swap so you could swap a Bitcoin or some tether for a BMN or 100th part of a BMN, potentially these EBB bonds in the short-term future. And they can basically provide you with an order book even, which is not technically an order book because there's no custody involved. It's just a kind of bulletin board meeting point, but all with trustless technology and And actually with confidentiality, so looking at the chain, you can't see what the price was,

how much was sold, and there's no technical topic, there's none of this kind of minor extracted value issue because the minor has no clue what happened. Basically, some kind of confidential trade happened. I think there's an ideal that people would like, but you know, you have to take some steps to get to that ideal. It doesn't happen overnight and instantly. I completely agree with you on that. So we had some Twitter, I don't know what I would call this a spat or a discussion, a contentious discussion with some of the folks over at stacks. And so just as we look at the comparison of what you guys are doing at Liquid, it's a federated model. You guys are not suggesting that it's decentralized like Bitcoin in any kind of way.

there's there's a form of centralization to that just like any other protocol that's layer one that's trying to do this and so their solution involves an alt coin that is part of the protocol that had a pre-mine obviously and but it's not a federated model when you're comparing these two what would you say to somebody who's listening to this who who's looking at the stacks model and saying, well, it's being built, and I think they're big phrases, it's being built on top of Bitcoin and using the hash rate of Bitcoin. And I know Adams pushed back on that pretty heavily, and I'm curious to hear your opinions why. But when you're comparing those two, they're pretty much implying that they're more open, but it requires a token. And you guys are saying we're not as open,

but we don't require an alt coin to be an intermediary between you guys doing these smart contracts with the issuance of like a mining bond or note on top of it with your own token. Right. I mean, I think that's been, you know, I think old coins have gone through an evolution over time and there is, you know, a market to speculate on them. I wouldn't invest in, you know, I wouldn't buy them personally because I'm a value investor. So, but other people will kind of speculate on things, basically. And so I think, you know, everything that came out of that is just basically iterations on that theme, which is, you know, the kind of evolutionary forces making them present ever more complicated stories.

Originally, it was just an icon and a copy of Bitcoin with some parameters and, you know, evolved into more and more elaborate stories. And there have been a few which have tried to claim various connections to Bitcoin, you know, that they're better than Bitcoin or they're like Bitcoin or they're connected to Bitcoin. So, you know, I think it's just more of the same, basically. And, you know, ultimately everything about it is an old coin. You know, there are plenty of old coins that check some, their blocks in Bitcoin. I lost track, you know, probably a dozen or something. So, you know, I don't think it's any different, really. Is there anything that they can do from a smart contract piece on, and I'm just using stacks as an example,

But you could use any one of these layer one smart application protocols that are out there compared to what you're able to do on Liquid with no innate token that's part of the protocol. Not really. I mean, it's, you know, I think most of it is a sales pitch for the token, right? So it's, you know, follow the incentives. And I think, you know, the challenges, as we were just discussing with the, you know, know the non-security world, the ICA pre-mined alt-coin world, it seems empirically like the hyper-incentivization derails the projects from, you know, achieving their outcome or puts too much of their energy into marketing or less into innovation or something like that. So, you know,

I think it's not really necessary. You know, yes, the, the sort of Bitcoin, layer twos are incremental, right? So, you know, there are tradeoffs. So I mean, Lightning, for example, make some different security tradeoffs. Liquid makes a different security tradeoff. But, you know, the ultimately, the sort of peer-to-pid transferability guarantees are much better than people assume with Liquid because, you know, most of the assets are native. to the chain. And what you're looking for the block sign has to do is just to provide a tiebreaker for which block is final. So, you know, the actual counterintuitive thing is people got hung up about this on Bitcoin already, right? That they assumed that miners were controlling things.

Actually, miners had very little control. They just order blocks, get rewarded for the work. And the people running the full nodes are actually in control, it turns out. And the market basically fixed, I think the outcome of the block size discussion was the free market won and got what it wanted. And so I think this counterintuitive as it is, a similar thing applies to a federate model, which is, other than the fees, which are in Bitcoin, the actual assets on it are native to it. So they can't be taken out of the network. And if the block signers, it's going to be analogous to the miners getting into this UASF situation, if the block signs on a liquid network were to do something that was undesirable

to the asset holders, they could fire them, basically. They could take the last snapshot of the chain, and you can run a full node, look at the chain, and elects some new block signers. I think most tokens are not needed. You can build on top of Bitcoin without making an alt coin. And when you say most, you're implying that there are times to do tokens as far as fundraising, similar to what you do in an equity kind of deal, correct? Yeah, and that's a security.

And that's a security. Got it. Okay. Was there anything that we didn't cover that through, your interview process after this big announcement that you guys would like to clarify or highlight that you think is an important highlight? We've covered a lot here. Adam, do you have anything else?

Yeah, that was pretty efficient. I mean, I think one of the kind of technical financial detail that might interest, some of your audience, a subset of them, is that the, the Bitcoin upside that we've been describing is basically an option, a Bitcoin option, right? An option is the right, the call option is the right to the upside above a price, a duration. So these are European cool options because you get the right at the end of the term. And there are option valuation models, the Black Shoals model. So you can apply a Black Shoals model to it and see that the expected value on the Black Shoals model

is about 2%. So if you add the 2% to the coupon, you end up at the kind of conventional bond rate, 8.5%, which is kind of their norm that El Salvador has been issuing. So now the Blackshould's model, I think it's not really great for Bitcoin because it doesn't look at past price changes. It's more about volatility. But in any case, it's just another data point that, you know, somebody without much of a Bitcoin view could run some conventional modeling tools on the two components in the bond and see that the combined coupon is in norm. I think it's an important note as well, and we were talking about this a little bit before we started recording at him. Most of this $8.2 billion worth of sovereign debt that El Salvador

has was issued at the 7.1 to about 9.5% coupon yield at the time of issuance. Because it's trading at a discount, because those bonds in the aftermarkets have traded at a discount to the face value of those bonds, they're effective yield. The yield that they're going for today is a higher yield to 12 to 13%. When I know some of the people in the Twitter comments were saying, you know, what's the big delta? Why am I seeing these yielded 12 or 13% today? And you guys are doing an issuance at 6.5% before the special coupon, the special

Bitcoin coupon. And I think it's important that they understand that those issuance are trading at a discount. And it's an effective yield that's up that high. And it's actually more in keeping with the initial rate of 7 to 9%. that a lot of the debt had been put on the market. So I think that's an important consideration as well. Yeah.

And I mean, that, you know, the discount, and basically the bond calculation is that if it's trading a discount, it pushes the implied interest rate up, right? Yes. So in any case, the, that is reflective of the credit ratings being reduced. it seems like partly in reaction to the Bitcoin law. Bitcoin legal tender law. So some of the ratings agencies, kind of very establishment, Bitcoin is risk to them. So that's a curious side effect.

And partly due to normal economic factors, right? COVID levels of debt, ability to service debt, I presume, not being a specialist in El Salvador economics or the ratings of these things. But in any case, I think an interesting point is the Bitcoin component may actually reduce the default risk because it's a second track to see repayment, which is, you know, on the first track, you're relying on the conventional, the government will typically do revolving, you know, more bonds to refinance previous bonds. from the country's coffers and tax revenue and stuff like that to repay the coupon on the

principal. Here you've got the second tranche, which is the Bitcoin component. And in many of these variously conservative models, the Bitcoin component alone could repay the principal and leave much left over, including the amount, you know, the half of it, the 500 million that's invested in infrastructure or later in the Bitcoin city. So I think it's a pretty interesting leverage bet on the future, you know, if it turns out that Bitcoin is digital gold in the same way that, you know, previous centuries saw black gold and oil and the petrodollah start to have a big influence in the world, they could find themselves as the, you know, the new oil wealthy country of the world, right, but in the digital realm. Yeah, you just have to have a little bit of foresight

and see where things are going. But I guess the other topic is risk of default, right? There is risk with bonds. There is always a risk of default. But like Adam is saying, that risk is significantly reduced by having that Bitcoin component, and that's by design. So, you know, you do 10 of these bonds, stagger them out a little bit. Well, El Salvador is accumulating their treasury of Bitcoin, and that should allow them to repay all bonds and, you know, pay the principle of these bonds, too.

But there's a lot of interesting things we can do. I've been kicking around this idea. of maybe tokenizing some of their existing bonds. So like I said, one of their bonds is traded on the Luxembourg Stock Exchange. We could wrap that, tokenize that, and then bring liquidity to that bond to crypto traders, and then issue another bond to buy back the old bonds. And that new bond would also be a Bitcoin back bond with the 50% Bitcoin component to it. So maybe that one bond will fix all of their old bonds.

Sounds like the creativity is the limitation here. Yeah. Well, not that you guys have the creative limit, but I'm just saying like this could get really interesting in the coming couple years, especially if this performs similar to like micro strategies convertible note that they were issuing. And I suspect it will. And I'm sure you guys are having six. I don't know, but I'm assuming you guys have had tremendous success with your block stream mining note. to date with it being the subscription rate on that, I would imagine, was very high. And you know, very exciting time.

Very, very exciting time. It takes time for new ideas to be digested by the marketplace. So like the BMN, when we first launched it, I think it took us like two weeks to sell out, right, Adam? Like two weeks. And then it was previous prior to Operation 2. So we started selling it in March this year and the mining started in July. So I think people felt more uncertainty at that point.

Well, I think they didn't understand it. And right now, every trench we're selling sells out in minutes. And I think we've sold 40 million now. And there's just a massive amount of demand for it. But once the market digest the Bitcoin bonds and they understand the impact and the potential and the potential also for El Salvador, I think it'll take off. we just need to launch them and get them out the door and sell them out, which I don't think is going to be an issue.

And then it's really going to take off. More nation states are going to be doing these bonds or private companies, too. It's just a new model. My last question for you guys, is there a supply chain impact for hardware, for mining hardware specifically? Moving forward, do you see that inhibiting more deals like this if you can't get your hand on mining rigs? I mean, there are supply chain issues in general at the moment for A6.

You've seen that with, you know, in the news about automotive, like even that which is different process, that's older process equipment. So yeah, I mean, I think what tends to happen there is mining profitability is extended. Normally the market would be producing more miners than it currently is to sort of catch up with the commodity economics, but because of the shortage, that's harder. And this is also one of the reasons that Blockstream acquired Spondulis tech in our recent B-Rad to build our own miners to, you know, I mean, everybody's still supply chain constrained, but what happens in a supply chain constrained world is the manufacturer's charge of premium.

and, you know, the prices are up three or four times, maybe more, since last year. And so, you know, if you are in a business of, you know, providing mining, operating mining, prop mining at a company or at a sovereign level, you're subject to those manufacturing premiums, which absorbs some of the mining profitability rate. So if you could, if you can manufacture it yourself at cost plus, you're in a better position, to keep that part of the upside. But I think El Salvador, they're going to do a lot more with the bonds. The first bond will be for infrastructure, energy infrastructure and mining, the subsequent

ones for Bitcoin City. But there's a lot to do when you're building out and building infrastructure for a nation-state, right? There's a number of things you could do with that money. And it doesn't all have to go towards mining, which is okay. Gentlemen, give people a handoff where they can learn more about you. We'll obviously have your Twitter handles in the show notes. Is there anything else that you guys want to hand off?

Yeah, you can learn more about Blockstream at Blockstream.com. And on Twitter, it's at Blockstream. We're on all social platforms, just Blockstream. Yeah, and we've also recently started a podcast hosted by Jesse Knitson, who's coincidentally one of the people working on a modeling for this bond. And so we are, you know, covering some of these topics there. It's, you know, block streamers, talking to block streamers about blockchain products, not a conventional podcast.

So it's just a way for us to explain. We do a lot of interesting things and we need to explain more of it and make it more accessible to people. So that's the thought process there. Awesome. We're opening up to more guests too. I think for one of the subsequent ones, we've got more from Spector. So people building on Blockstream Tech also are welcome to come on. Oh, that's awesome.

Okay, so we'll have a link to the podcast there as well. Gentlemen, thank you for your time. This was amazing. I was learning so much. I just appreciate every time you guys make time to come on the show. Thank you, Preston. It's always a pleasure. If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use.

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