Bitfinex hopes El Salvador’s ‘bitcoin bond’ will be just one of many tokenized offerings on its platform

Crypto exchange Bitfinex hopes its imminent listing of Salvadoran investment tokens will be the first of many for governments and companies seeking to raise funds from crypto-focused investors.

While the exchange’s Bitfinex Securities platform currently hosts tokens from just one company — a security token tied to the mining efforts of bitcoin startup Blockstream — it expects more to follow, Bitfinex chief technology officer Paolo Ardoino, who is also CTO of the stablecoin tether, told The Block in interviews at the Paris Blockchain Week Summit on Wednesday.

If all goes to plan, Bitfinex will be the sole venue through which investors can buy into El Salvador’s delayed $1 billion fundraising — which has been billed as a “bitcoin bond” but could be more accurately described as a crypto token. Treating this deal as something of a loss leader, Ardoino explained that Bitfinex won’t be charging any fees for listing the Salvadoran tokens, although it will make some revenue from trades in the secondary market.

Bitfinex is making a play for primary listings to diversify its revenue away from simply taking a cut on crypto trades. When it launched Bitfinex Securities last September, Ardoino told The Block the company was “trying to eat the lunch of London Stock Exchange and other traditional stock exchanges.” 

Bitfinex Securities has received a license to operate in Kazakhstan and hopes to get another to operate in El Salvador. The pitch for companies — or indeed, governments — looking to raise capital is threefold: the fees are cheaper than at traditional exchanges, at least up to a valuation of about $1 billion; the listing can provide greater liquidity for small companies than a traditional exchange; and the platform opens access to enthusiastic crypto-native investors.

“These companies are made by super young guys that want to move fast,” Ardoino explained when asked who would be attracted to list on Bitfinex Securities. “They have already one foot in crypto, but maybe their companies are not about crypto. They see crypto as an emerging market, as an opportunity.”

'The bond is actually a token'

Turning to El Salvador, the highest-profile example of a tokenized fundraising, Ardoino said he hopes to see further movement in the long-awaited “bitcoin bond” issuance “between one and two weeks” — although the timing is unclear because the government has been sidetracked with a crackdown on gang members.

Ardoino outlined the timetable of El Salvador’s token sale like this: first, the government needs to get its new digital assets law passed, giving financial firms like Bitfinex the regulatory clarity they need to operate. Once the law is passed — hopefully within a couple of weeks — Bitfinex Securities can apply for a license. El Salvador must then produce a so-called Key Information Document for review by Bitfinex. If it all checks out then the exchange can approve the fundraising.

At this point, Bitfinex can start its job of matching buyers with sellers — with the seller in this case being the Salvadoran government. El Salvador will create 1 billion tokens for issue on Bitfinex’s blockchain and Bitfinex users can pledge funds from their wallets to buy them. As the fundraising concludes, Bitfinex will swap the users’ funds for the Salvadoran tokens, which can then start to trade on the secondary market.

El Salvador intends to distribute a coupon payment to token holders once a year.

The tokens won’t be able to leave users’ Bitfinex wallets for a year, and — even once such transfers are allowed — they’ll have to go to a whitelisted address that has passed know-your-customer checks.

“The bond is actually a token,” according to Ardoino. “It has some features of a bond, but actually it is a token because it might not have all the features and all the guarantees of a bond.”

'Instrument of freedom'

Asked who’s going to buy into this fundraising by El Salvador, a nation whose credit rating was recently downgraded by Fitch, citing the “​​weakening of institutions and concentration of power in the presidency,” Ardoino said he expected demand from large trading firms and bitcoin whales as well as retail investors.

“There are big trading firms that wouldn’t mind — after they read the key information document if they feel comfortable — to invest quite a large sum. So it's not just retail: it’s market makers and big whales. Bitcoin whales, especially,” Ardoino said.

For bitcoin whales, Adroino said: “This is the first time that a government has ‘got the balls’ of taking such steps. And they have to support it because that is what bitcoin is about. If they let the El Salvador token die and be unsuccessful, it is going to look bad and push back the narrative of bitcoin as an instrument of freedom even for countries.”

Bitfinex’s business model is positioned toward institutional traders, with retail investors making up just 15% of volume on the exchange. Ardoino was keen to highlight the speed of trading Bitfinex can offer institutions, reducing the chance of prices moving against them when markets get choppy. 

The executive said trading fees for the retail market will eventually head to zero, as they have in stock markets — thanks to the actions of insurgent brokers such as Robinhood. 

“We believe that eventually there will be a Robinhood of crypto for retail, so that the entire segment of crypto for the retail guys will go to zero,” Ardoino said.