The world's premier blockchain gathering, the Paris Blockchain Week Summit (PBWS), took place over three days last week from April 13, bringing together over 3,000 attendees and 250 speakers, including some of the most influential figures in the industry.
Speaking exclusively to CryptoSlate at PBWS was Bitfinex and Tether CTO Paolo Ardoino, who discussed numerous topics. Most captivating was the subject of Volcano Bonds, potentially the most significant financial development in El Salvador since Bitcoin became legal tender.
El Salvador made headlines last September as the first nation to adopt Bitcoin as legal tender. The move faced opposition from various organizations, notably the International Monetary Fund (IMF), which questioned whether BTC as a national currency was a step too far.
Nevertheless, President Bukele remains committed to the "experiment," demonstrating this by purchasing the dip whenever opportunities arise.
A frequently debated question is how Bitcoin will evolve into both a store of value and a transactional medium. Currently, given the early stage of cryptocurrency development globally, there are no definitive answers.
However, observing developments in El Salvador, particularly the widespread use of BTC for transactions via the Lightning Network and the emergence of Volcano Bonds, we're witnessing how this will unfold in real-time.
El Salvador's Bitcoin-backed Volcano Bond is revolutionary as it represents the first tokenization of a sovereign bond. The implications of this cannot be overstated, as the Volcano Bond will enable traditional finance to issue debt via cryptocurrency infrastructure.
Currently, several obstacles are hindering progress. This includes obtaining legislative approval and, as a side note, considering the U.S. Bitfinex/Tether restrictions, ensuring compliance with U.S. regulatory requirements.
Naturally, we wanted to learn more. What better way to gain insights than hearing directly from the Bitfinex CTO?
CryptoSlate: Could you explain Volcano Tokens (VT) and how they would work with Bitcoin and the Lightning Network?
Paolo Ardoino: The VT and LN aren't directly connected. The LN is an efficient payment system built on top of Bitcoin that makes transactions extremely affordable and highly scalable. It's arguably the best technology among all blockchain-supported solutions for payment applications.
The LN, if you think about it, enables micropayments at national and local levels—it's a person-to-person solution... And yet, there's settlement that occurs on layer 1, which is Bitcoin.
But the VT is essentially their sovereign debt instrument. This VT is, in many ways, similar to a bond but will likely have a hybrid structure... But you can think of this bond as a simplified version of a debt instrument that will provide access to investors.
On the other hand, with the $1 billion that the El Salvador government aims to raise, these funds will be used in two parts. Half a billion dollars will be used to purchase Bitcoin, hold it for five years, and after five years they'll sell these Bitcoin for fiat currency and return half of the profits to the [Volcano] bond holders.
The other half of the profits will be retained for infrastructure development. This will be used to expand the geothermal energy infrastructure they have around the volcano, to harness heat from the volcano's core and convert it into electricity and energy.
They'll develop that facility, which will be used to, first of all, improve the energy infrastructure in the region, as well as for mining and several other applications. They're using this initial debt issuance partly to create a Bitcoin mining facility and partly to enhance the energy infrastructure.
And if you think about it, it's the perfect time—we've learned the hard way, even in Europe, how energy today is like modern gold, right? Energy is scarce. And we need to invest resources into developing energy sources.
CryptoSlate: On which blockchain will the VT be issued?
Paolo Ardoino: One of the key aspects of the VT is that it's a country's bond, right? It will be traded by Bitfinex Securities. The President of El Salvador also confirmed on Twitter that they would use Bitfinex Securities as their technology service provider for their VT issuance.
The underlying blockchain on which this bond will be issued is Liquid, simply because Liquid has a whitelisting feature. Since this is a country's bond, you really don't want this instrument to be traded on DEXs because there are strict KYC and AML requirements from regulators. Of course, we need to exclude certain jurisdictions.
CryptoSlate: You mentioned that there are still some laws to be passed in El Salvador to get the VT approved. Given that El Salvador is quite crypto-friendly, do you see this as a potential challenge?
Paolo Ardoino: I don't think it's a challenge. I believe the government has announced in recent weeks that they have 52 new laws they want to pass. One after another. My understanding is that they're going to present them to Congress and address these laws.
To my knowledge, in the next two to three weeks, it's likely that this law will be evaluated by Congress and potentially passed. So, it's a matter of weeks potentially, I don't think it will take several months—it's in a way just around the corner.
After the law is passed, Bitfinex Securities can apply for a license in El Salvador. Once we obtain the license, if we get approved, of course, we can provide our platform as the technology provider for the El Salvador government to issue this bond so that all Bitfinex users can apply for Bitfinex securities, and once they complete the securities process, they can participate.
Credit to Liam "Akiba" Wright for managing the interview and filming process.
