Caracas Chronicles

Original art by @modográfico

It’s been about a month since Maduro announced the petro, the new PDVSA bond that comes in cryptocurrency wrapping to get around sanctions. Many here at Caracas Chronicles think it’s yet another episode of empty propaganda, but I profoundly disagree: chavismo is facing the existential danger of running out of funds, and they’re betting heavily on the the petro.

As you read this, a team of Venezuelan developers and international advisors is forking open the source code of several decentralized technologies, adapting it to suit chavismo’s central planning and rent-seeking necessities. Their plan involves a public token we’ll call the “pre-petro”, and a private asset they call “petro”, which, if history is any indication, will be managed by regime loyalists. Pre-petros will be redeemable for petros 1-to-1.

100 million units of pre-petro are already mined and sit on the blockchain, waiting to be traded. Pre-petros are technically ERC20 tokens that use the permissionless and world-famous Ethereum network. They can be traded and listed on exchanges very easily, and the association with the Ethereum brand may give it some credibility with traders crazy about everything crypto. Chavistas are already in talks to sell pre-petros to foreign countries (and perhaps naïve cryptomillionaires), in a private sale of the first 38 million units starting on February 20.

How much will each pre-petro sell for, then? Chavismo is performing incredible mental gymnastics to anchor it to a nonzero value, and they settled on each unit being worth the same as a barrel of oil. That’s about $60, payable in crypto rather than dollars (sanctions! ????). Rest assured, Maduro is offering his pinky promise that they’ll be “backed by oil” (but not really), and even bothered to sign worthless pieces of paper ratified by chavista pseudolaw.

No doubt aware of their terrible track record, the government is incentivizing participation in the private sale by offering a 60% discount (take note, folks, this is how you sell air). What company in the world would sell 38 million units of a product for less than half their market value? A company that doesn’t intend to ship you the product after you buy, of course.

This network will be far more centralized than the crypto community is willing to tolerate. The long-term value of petro will be zero.

If this goes well, and that’s a big if, a public sale (ICO, for Initial Country Coin Offering) will start on March 29. 44 million units will be up for sale, and presumably anyone with an Ethereum wallet could participate. It’s still unclear if the payment options include fiat (yuan, rubles), or if it’ll be crypto-only, in which case the government has a problem of scale: there ain’t enough crypto to finance a state yet. Oh, and no matter if you buy in crypto; if you’re US-based, Uncle Sam will try to find you and take you to court for circumventing sanctions.

The remaining 18 million units will be nicely split among Superintendent Carlos Vargas, his staff, and the blockchain useful idiots of the VIBE foundation, who make all of this possible. It’s funny, because official documents state that the foundation is moved “by altruism” and not by a few million coins. Shows you that chavistas understand the concept of skin in the game.

After the sale is over, tokens will likely be listed in exchanges that don’t give a damn about US laws or the morality of financing a communist regime in the 21st century. This is when traders will come into play, and with direct control of almost 20% of the tokens, I’m counting on the government to execute calibrated pump-and-dump schemes to raise even more money. Y’know, like they used to do with bonds.

If this scheme succeeds, Maduro’s private blockchain will be ready for prime time later this year, so pre-petros on the Ethereum blockchain will be “burned” and redeemed for petros on the Petro blockchain. Based on Decred, but with architectural elements of Ripple (particularly permissioned nodes that are arbitrarily chosen by the government), this network will be far more centralized than the crypto community is willing to tolerate. The long-term value of petro will be zero, especially when it becomes obvious that there’s no back-office anywhere where you can scan a QR code and get your tanker filled up with oil.

Again, seguiremos informando. There’s a bunch of vague official statements: the state will accept taxes in petro, it’ll foster its adoption through the Carnet de la Patria, it’ll create “authorized bolívar exchanges.” This is all aimed at building trust in an untrustworthy government.

It bears repeating: don’t buy this #bloodcrypto. Libertarians don’t finance authoritarians. And if you think communism will work this time because “they’re doing it with crypto”, well, buy and get rekt.

UPDATE: The official Petro whitepaper was just released. I’ll be monitoring the comments section for discussion.