Venezuela has reportedly made the first state-backed cryptocurrency, the petro, available to the public. Crypto investors should just say no.
For one thing, Venezuelan President Nicolas Maduro blatantly advertises this new crypto token as a tool to circumvent economic sanctions, levied due to his government’s massive corruption and human rights abuses.
The opacity and confusion surrounding the petro project exemplifies the tumultuous and nefarious political climate in Venezuela.
Although the petro is unlikely to hold much value in today’s digital currency markets, cryptocurrency enthusiasts around the world should send a strong signal to Maduro and to other rogue actors who may be learning from the petro experiment, that blockchain technology will not be used to support corruption.
Keystone cops of crypto
The poorly planned rollout of the new cryptocurrency has already given potential investors plenty of reasons to stay away.
First of all, the Maduro regime has not been transparent about exactly how the petro will be acquired, traded, and managed.
In January, the regime published a white paper explaining the mechanics of the petro; a few weeks later it posted a revised version which announced the petro would be built on an entirely different blockchain platform.
The regime also published an anti-money laundering (AML) guide for Venezuelan cryptocurrency exchanges, but at first, it only featured a table of contents.
In addition, Maduro has made outrageous claims, like saying the government had raised $5 billionin the first few weeks of its petro pre-sale, but offering little information about the supposed investors.
This strains credulity, as it would dwarf the amount raised by any other cryptocurrency token sale; the largest “initial coin offerings” thus far have raised at most a few hundred millions of dollars.
Adding to the uncertainty, Venezuela has tapped a rather obscure network of Russian technologists to build the petro.
A firm called Zeus Exchange told CoinDesk that it will be providing some coding for the token software but later told the Associated Press that it was not formally involved with the project. Zeus Exchange is a Russian startup registered in Singapore and licensed in Cyprus; its website says it is developing a blockchain-based platform for trading traditional stock shares, but it has no white paper available on the site to evaluate its claims.
A Russian fintech news website reported recently that a company called Aero Trading won a contract from the Venezuelan government to build the petro on the NEM blockchain and market the token internationally. Aero Trading is based in Uruguay and run by a Russian businessman who, according to his biography website, represents companies from Russia and other former Soviet Union countries doing business in Latin America.
Aero’s website has nothing more than a facing page and its Twitter account as of March 23 had only three tweets which it posted right after the petro pre-sale began. At the start of the pre-sale, the Venezuelan government posted a photo on its website showing Maduro meeting with representatives from both Zeus and Aero.
It is not surprising that the Venezuelan government would tap relatively unknown Russian outsiders to help develop its sanctions-busting cryptocurrency. A Time investigation reported that senior advisors to Putin have supervised the petro project, with the Russian president’s approval.
Much of the Russian financial system is under U.S. and EU sanctions and blockchain tech development in Russia has been occurring with the aim of undermining those sanctions. While these businessmen are not official government representatives, Russia is very sympathetic to the Maduro regime, recently providing billions of dollars in debt-relief to Caracas.
Russian loans have allowed the regime to remain afloat despite years of massive corruption, allegations of endemic drug trafficking by government officials and their families, and gross economic mismanagement of the country’s state oil company, PDVSA.
Send a message
The everyday cryptocurrency investor can play a part to prevent the petro from funding corruption and human rights violations in Venezuela.
Since the pricing of cryptocurrencies sold on exchanges is generated by market demand for each token, the crypto community should share information about the nature of the Maduro regime and how the token serves to fund its abuses. This should not be a hard point to make given the libertarian roots of the cryptocurrency space.
Venezuela’s opposition-controlled National Assembly has already declared the petro an illegal extension of debt. U.S. sanctions against the regime already cover the petro. The members of the Organization of American States that have denounced the regime’s attempt at subverting democracy in the upcoming elections rescheduled for May should also make their citizens aware of the petro’s implications for corruption and dissuade potential investors from funding the Maduro regime.
The crypto space usually is averse to regulatory action around cryptocurrencies, but the community should be particularly aware of the regulatory risks of dealing in the petro.
Cryptocurrency exchanges operating in the United States cannot legally trade the petro. But exchanges outside the United States should realize that if they offer the petro, they will have to be careful to ensure Americans on their platforms do not purchase the token, which would be a blatant violation of U.S. sanctions by providing funding to the Venezuelan government.
To drive this point home, on Monday, the White House issued a new executive order explicitly banning U.S. persons from any transactions with the petro.
On the marginal chance that the petro succeeds, Maduro’s regime will have crushed the last legitimate powers of the National Assembly and reinforce his consolidation of power over the last opposition-led government body. Without a drastic change in Venezuela’s leadership, its economy faces total collapse. But a cryptocurrency created by a corrupt and rogue government with little regard for its own country’s laws will not solve the endemic crises plaguing the once-rich nation.
Supporting the cryptocurrency endeavor championed by the same criminals who caused the crisis will not provide the food and medicine Venezuelan citizens desperately need to survive. The blockchain business community in Latin America should be the force driving the growth of the technology in the region, not a dictatorship.
The petro experiment is an ideal time for those who love crypto to send a strong message that using cryptocurrency technology to fund the furtherance of human suffering will not be tolerated.
Yaya J. Fanusie is the director of analysis at the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance. He tweets at @signcurve. Michaela Frai is a research associate at the Foundation for Defense of Democracies. Follow her on Twitter @MichaelaFrai. Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.