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“Petro” was announced by Venezuelan President Nicolás Maduro in a televised address at the end of 2017, just as investors’ frenzy for initial coin offerings (ICO) was at its peak. Backed by Venezuela’s oil reserves, the country’s cryptocurrency was explicitly designed circumvent US and EU sanctions and bolster the struggling regime.
It would do this by quickly raising much-needed capital from foreign investors and potentially establishing a means of payment that could bypass the international financial system that enforces those sanctions.
The issuance and sale of the Venezuelan petra mirrored the model used to great effect by many ICO companies. In January 2018, the government announced that it would issue 100 million petro tokens, each valued at around $60. The initial batch of tokens was to be made available through a “public pre-sale”, whereby citizens could register with the government website to buy gasoline using Russian rubles or cryptocurrencies like bitcoin.
On the very first day of the pre-sale, Maduro claimed that Petro had raised $735 million from 87,200 investors from 127 countries. By the time it was over, figures from the official website said about $5 billion had been raised.
Where are the Petro tokens?
Despite the Venezuelan government’s impressive claims about the success of the petro, it remains unclear whether the money has been raised or whether the crypto token even exists. There is no clear evidence that anyone has successfully purchased gasoline through buggy pre-order website – the purchase process often disrupts inexplicably errors or email confirmations that never arrived.
The confusion surrounding the issuance of the petr was caught by fraudsters who set it up website and twitter accounts and are allegedly agents of the Venezuelan government. These were used to trick unsuspecting investors into buying fake petro tokens with cryptocurrencies.
Even if some of the tokens were successfully issued and sold, where are they? The scheme is confusing and self-contradictory white paper variously describes petro as being issued on the Ethereum blockchain, the NEM blockchain and its own dedicated blockchain. There has been no confirmation from the Venezuelan government that this is the case. A number of tokens have appeared on the Ethereum and NEM blockchains, called “petro” or variants thereof. However, anyone can create such tokens on these public blockchains, and the Venezuelan government has not confirmed that any of them actually correspond to petro.
Additionally, none of the many cryptocurrency exchanges around the world (including Venezuela) appear to have listed the petro – an unlikely situation if billions of dollars worth of tokens are in the hands of investors looking to trade them.
State-backed cryptocurrencies, blockchain transparency, and maintenance of sanctions
Fast forward to August 2018: Venezuela is facing inflation of close to a million percent, and the government has announced the replacement of the bolivar fuerte with a new currency, the bolivar soberano. Besides being devalued by 95% against the old currency, the value of the bolivar sovereign is now pegged to the petro. This petro-support of the national currency was described as a “smoke screen”: an attempt to blind the public with blockchain technology and distract from another catastrophic currency devaluation.
Although the petro resulted in something that looks more like a poorly implemented scam than a sophisticated attempt to circumvent international sanctions, it is still a significant milestone for the crypto asset. The nation-state’s use of decentralized blockchain-based assets to circumvent economic controls is a model being scrutinized by other countries under sanctions. Russia and Iran are registered it claims to be developing state-backed cryptocurrencies and that Russia is involved in a petro-scheme, with Vladimir Putin himself said to have been personally involved.
In response to the petro, President Trump issued executive order prohibition of transactions in any cryptocurrency issued by the government of Venezuela by a person from or within the United States. OFAC clarified that US persons have the same sanctions compliance obligations regardless of whether transactions involve fiat currencies or cryptocurrencies, and announced that cryptocurrency addresses will be added to the Specially Designated Nationals and Blocked Persons (SDN) list.
The transparent nature of the blockchains on which these crypto-assets are transferred means that governments and financial institutions can still do a lot to ensure sanctions are maintained. Cryptocurrency exchanges in the US and elsewhere can act as gatekeepers to the mainstream international financial system by ensuring that the transactions they facilitate do not transfer value to or from crypto-assets issued by sanctioned countries. An example of this would be efforts by cryptocurrency exchanges to block Bitcoin transactions in advance of the Petro or the Venezuelan cryptocurrency exchange allegedly licensed offer petro trading.
Regulators also have the opportunity to use blockchain monitoring to monitor the flow of funds in foreign crypto assets and ensure compliance with sanctions. Cryptocurrency transaction verification can be accomplished using blockchain-based transaction verification tools such as Elliptic’s AML software.
Interested in using blockchain analysis to understand cryptocurrency flows? Learn more about how Elliptic helps regulators, financial institutions and bitcoin exchanges monitor crypto transactions.
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