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.

46 COMMENTS

  1. Maybe the regime was banking on the worlds drunken infatuation with crypto currency trading allowing it to ride the petro on the back of that wave ……., now that every where the infatuation is fading or being brought under critical scrutiny the chances for its success are near negligible ………!!

    What I dont quite get is why the issuance of a crypto currency can be treated as the equivalent of a bond issue , bonds have to be paid back while cryptocurrencies exist in a world in which the issuer has no obligationn to pay back what it got from selling it …..Its like the selling of indulgences by the medioeval church …the selling of an illusion is not a loan even if it does raise money for whoever sells them .

      • “… 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.” You seem to punch the right key with that one, and the same with a lot of other perceptive, witty, observations you make. It’s nice to read an article by someone who understands programming and the little bits and bytes of illusions computers create on a monitor. As far as citizens of the U.S. and other sanctioning countries making any mistake of buying petros for a lark, we may not like the infringement on our personal choices (principally due to lack of understanding) but as one security expert commented once: the only way you can be sure you are not traceable or hackable is to unplug your computer. Anyone who wants cryptocurrencies has a pretty wide range of perfectly legal better bets. And there’s always a casino, a weekend poker game, or animalitos to play, heheh.

    • It’s more like a non-cumulative perpetual bond with no call options. Or like a zero coupon pref share or something along those lines, moreover, out of an illiquid bankrupt issuer. There are many idiots around the world that have reckless investment/gambling styles… let’s see how many will pick up on this…. My guess, not so many beyond the various artificial (as in, “set up by the chavista misfits government”) early participants, designed to make it look like a success.

  2. The intent of cryptocurrencies like BitCoin were to allow movement of funds outside of government control.
    Bitcoin was intended to be a currency, but has become a commodity. Speculators are buying BitCoin in the hopes of it increasing in value.
    The Petro is tied to oil. Oil futures would be a much safer investment.
    Would anyone like to hear a story about some Dutch tulip bulbs?
    This drug smuggling, murdering, illegal regime should have created a currency designed to do business with other criminals and named it the Corrupto.

      • Exactly! The only way the Petro would be backed by oil is if that oil was sitting in storage tanks somewhere, that creditors could actually get their hands on.
        Otherwise it’s not backed by anything

        • If you buy an oil futures contract, be sure to get out before the last trading day, or you’ll have a tanker at your doorstep asking where you want the 1000 barrels (42,000 gallons) pumped. (Well, not exactly at your doorstep, but you have to specify one of various delivery points. You do get your oil.)

  3. Fresh off-the-oven Kleptozuelan Crypto Klepto-Petros for sale!

    1 x KCKP = 1 Reina Pepiaa bien resuelta, chamo. Ponte Pilas, ese Guiso ta’ bien gueno!!

  4. The problem with Petro, as Alejandro points out, is that it is “backed by the full faith and credit” of Chavismo, and have they done a number with Bolivar FUERTE! They in turn say that it is backed by oil, something they are having a lot of trouble producing and that is already promised to the Chinese and other creditors.

    Bitcoin is like gold. Finitude of computers and the properties of prime numbers make it scarce and limited. The fact that many people find it valuable creates a market. Like gold, no central authority decides the value or supply.

    What makes cryptocurrencies so appealing is the fact that you can exchange a computer token instead of creating a paper trail in a bank or moving a bag of cash. This is certainly appealing to Chavismo to skirt financial sanctions, something they share with other criminal outfits that wants to avoid scrutiny.

    I doubt Petro will fly if it is perceived as a state issued currency by a #tropicalMierda government.

  5. The next step, after the “Petro”, is for Mad Ernie and friends to offer the “Coca-Coin”. They going have work (sniff) It’s pricing – say one gram per one “Petro”. I think that it will sell well.

  6. “…by offering a 60% discount…”

    …to a meaningless number. However, I think it is a mistake to believe that they will be worthless. The government can manage their short term value as long as it is prepared to accept them as payment of debt due to it (like payments of taxes or payments for an oil cargo specified in dollars) and provided they are willing to accept market translation of dollar value or like-for-like payments specified in dollars then they will have a value to somebody. My guess is that the government will accept the “loss” on the first issue and then sell a few oil cargoes for petros at generous rates thus driving up the Petro price to be equal to oil price less discount for Ven crude quality less some discount for payment in Petros. This will pump up the price nicely for the second round dump. After that, the government will stop accepting Petros on such generous terms (or altogether) and the price will plummet. Gamblers can then win some money from the dead cat bounce. A gambler still might find that purchase post first issue and sale-on-margin before the second issue is worth a punt.

  7. I wonder if anyone will sell and trade derivatives (puts and calls) on the petro? That way the pump and dump insiders could leverage their knowledge.

    Also, someone should point out that oil in the ground is not worth $60 per barrel.

    • Oil produced in Venezuela is not worth $60/bbl in the ground and it is not worth $60 even when loaded on a tanker. It is heavily discounted for quality. However, let’s say after the first Petro dump, PdVSA is ordered by the government to sell the first three tankers of oil (each 2 million barrels, say) for a nominal price of $40/bbl and agrees to accept payment in Petros at 1 Petro equals $60. If the purchaser can buy Petros at that time at 1 Petro = $30, then they will leap at the opportunity to make an enormous profit. The next purchaser, if they can secure the purchase through escrow, they will leap at the opportunity to pay in Petros even at 1 Petro equals $59, making themselves a quick “exchange rate” profit of (1/60) times the cargo value of around $100mm.

      If the government does this for three cargoes (a tiny fraction – just a few days – of Venezuela’s reduced production), how close to the bone will the fourth purchaser bid? How close to $60/Petro would you go if the government set that rate?

      In this way, I think that the government can manage the short-term value of the Petro as it wishes.

    • The extra-extra (like tar tan sand) coming out Orinco Basin (Most of remaining oil Venezuela oil) is only worth $28 to $35 a bbl (based on Alberta Tars costs). Then you have replace upgrader facilities. (It all worn for lack of upkeep). The lighter fields (rated in just “heavy” ) are promised to Russian or Chinese interests.

  8. I am hoping for a lot of foreign lefties to loose their money on Petro 🙂 just thinking about the bern lovers trusting Maduro and offering their support by buying petro makes me chuckle

    But honestly, even that is stretching, very few people outside the bolichico circle will put serious money on it. Is an obvious scam.

  9. Take the information contained in this article, couple it with the “Crisis Consumes Venezuelans and Nobody Else” would seem to indicate that investors will treat the Petro like other cyber-currency sans regard of the beneficiary simply investing out of avarice. El Guapo: Sorry I didn’t see your query until just now. I have my roots in Minnesota’s Iron Range, as you know an area of extreme poverty but being driven into prosperity by corporations from Chile and India. I spend time in Rochester although I now live in Iowa. I return to Mayo once in a great while to have surgery on my wallet. For any medical professionals remaining in Venezuela, and looking for employment elsewhere ,the Mayo Clinic and Rochester area are undergoing massive expansion and growth. The goal is to make Mayo the world’s most modern and largest medical hub. Great amounts of OPEC money invested in Rochester over the years and billions more pouring in. El Guapo, as you go north on 52 you pass Kuehn Motors. I graduated from Spring Valley HS with Charlie Kuehn, one of the founders. I believe I still hold the People’s Republic of Minnesota record for receiving a HS diploma with a negative GPA. Of course that was in 1961 days of the draft, jail or the Army. During the bleak era of Obama and a move towards socialism the US economy suffered far beyond what most folks understand. It has taken Trump, and healthy support from investors/business folks, only one year to right this ship. I’ve read elsewhere that Maduro with his Petro is simply trying to return Venezuela to a system like the gold-standard without the gold.

  10. If you watch VTV for an hour, you’ll get enough proof that Maduro & Co are pretending to use the petro as INTERNAL propaganda. That doesn’t preclude that their primary hope for it is to use it externally as a way to raise cash without going through financial institutions.

    If enough of the Chavistas have deluded themselves to think they can raise any significant amount of real money with their Petro crap, I think we might be witnessing a “Steiner Division Moment” that will play out on Feb 20, when they discover that nobody is going to give us one cent. Hopefully they’ll panic and collapse or they might be compelled to actually negotiate their exit from the government. The mistakes made 10-15 years ago are now being paid and nobody is coming to save us from them.

    The closest thing to a real attempt at negotiation (as pathetic is it might be) occurred when the government (finally) realized that it would not be able to refinance the debt.The sanctions played their part. But, I think that the real driver was that parody of a Bond Holder meeting they held (and had the gall of claiming they were going to negotiate a refinancing of the debt in it). I think that by now it’s obvious that Bond Holders are currently waiting for the April payments before deciding on how to proceed. And the chavistas might have convinced themselves that since you can sell a Bitcoin for close to US$ 10000, that there will be people stupid enough to shell out US$24 per Petro. I read on Reuters that effectively these VIBE people (whomever they are) allegedly have recommended a 60% discount on that completely artificial price they placed on each Pre-Petro token. I think that if they are actually hanging their hopes on this. I have a relative that has to work for the government, and she tells me that at the government office where she works, all the Mid Level managers who for years and up till a couple of months ago lived in an eternal “purity contest”, pretending to show off how faithful they were to the Chavista ideological crap are pretty low key these days. I think that is significant. It also leads me to think that a similar situation must be playing out in the mid-level Military ranks. Which leads me to conclude that the High Ranking Chavistas know that they’re running out of time, and are desperate enough to think that something like the Petro will give them some breathing room. Hopefully it will fail miserably and they’ll have no choice but to actually negotiate their exit from the government. It’s a small pathetic hope. But, right now, it’s all we’ve got.

    • A crisis like this one will only accelerate, so the hardship expands its reach and strength.

      I have a friend that is reporting straight up poverty in the mid-rank officer core. Another thing that caught my eye was Godfather Lopez proclaiming that ALL FOOD was to be distributed by the military. This would seem to indicate that he may be anticipating some serious food shortage (famine?) and he is trying to get ahead of the problem and resolving it as a military man would, centralize and take control. What an idiot. I sure hope he learns shortly after that centrally planned economy DOES NOT WORK even if you do it with a gun.

      • With the Sundee effectively dismantling what’s left of the supply chain for food, I guess he’s trying to make sure his Mid Ranking officers get first dibs on the spoils. Not that it matters, it won’t last. I think that as it is, these people are happy with kicking the can down the road for one or two weeks (not even a month).

  11. You know I’m more than sceptical about cryptocurrencies. The tech is interesting, the economics is just crazy bubble again.

    But that said.. Wait a fucking minute, they are going to sell pre-petros for 60$ payable in CRYPTOCURRENCY?

    So, you have Bitcoin, or any of the Ethereum based things, that go up and down and all that but less assume you bought it as many did, because hey, it is going up all the time.

    And you are going to put $60 in that today, that you are betting are going to be much more money in the future, to buy the promise to get another different crypto currency “backed by oil” AT THE BLOODY 60$ RATE?

    You have to be a daredevil, an idiot, or a daredevil idiot to gamble on the cryptocurrency thing. But if you give Maduro your crypto for his, you are just an idiot. This all sounds like somebody thinks they will get a bunch of current crypto and get rich on the market by selling crypto-cat instead of crypto-rabbit.

  12. The cryptocurrency bubble is simply the extension into absurdity of the world stock markets bubble now at record length due to massive liquidity pumping by world central governments trying to stave off the inevitable downturn of an economic cycle which almost became a world depression last time around. Similarities to the classic Tulip Bubble are striking. The Venezuelan Petro is simply the most absurd of the cryptocurrency absurdities…IF central banks decide to employ cryptocurrency type transactions for speed/efficiency/whatever, always running the risk of deadly hacking, then they will employ their own cryptocurrency design,

  13. Honestly this topic is really confusing, of course, I know little to nothing about cryptos. I would really like if CC would release an article from a cryptochico perspective: how are they going to turn this into their next milking cow? What are the steps, how does someone make money out of this?

    This article clearly explained the risks associated to trust and the problems around the crypto itself. I don’t know much about cryptos but I firmly believe this is something internal, they are searching for ways to keep the inner circle happy avoiding sanctions, that probably affected high officials and other VIP more than they initially hoped. As mentioned in the article the amount of petros is not enough to actually be representative for the country, so there’s my petition: an explanation -maybe not possible now with info available, I know, but when possible- of how a bolichico will make profit from this scheme.

  14. So, the putrid will start in value as a barrel of oil.

    Which means it’ll roughly cost 60$.

    Welp.

    That’s about (Checks Dollar Troll-y), yep, 13.675.320 Bs per putrid.

    Unlike the Bit Coin at its beginning, this one is born in a speculation cradle, heheh, so much for the “exchangeable cuban peso 2.0”

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