For years, Venezuela has been on a path of increasing economic turmoil. Suffering from one of the most notable economic collapses in modern times, the country faces mounting debt and hyperinflation, rigged elections, and weakened opposition to those in power while citizens are suffering from hunger and violence.
President Nicolás Maduro’s solution is launching the first government-backed cryptocurrency, the Petro, which claims to be backed by oil and reportedly raised $735 million in its pre-sale last week. Each token is said to be backed by one barrel of oil. According to Fortune, Petro appears to be a ploy to raise money to get around sanctions placed on Venezuela, which prevent the country from issuing bonds and securities in the U.S. financial market. The Treasury Department noted that “U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk.”
Controversy has ensued around the Petro cryptocurrency from inside and outside Venezuela, with critics claiming that Petro isn’t actually a cryptocurrency. Opposition leaders have described Petro as an “illegal debt issuance that circumvents Venezuela’s majority-opposition legislature,” according to Reuters.
The Guardian reported that lawmaker Jorge Millan said that Petro “is not a cryptocurrency” but rather a “forward sale of Venezuelan oil.”
One standout issue is the discrepancies within the white papers released by the government regarding which blockchain the Petro will rely on.
Leading up to the pre-sale that launched on February 20th, the pre-sale was said to “consist of the creation and sale of an ERC20 token on the [blockchain] of the ethereum platform. This process will promote and guarantee demand for the Petro Initial Offer, which will be made later.” Ars Technica reported that by February 21st, “all mentions of ERC20 had been scrubbed from the white paper. A new version of the paper stated that the presale will ‘consist of the creation and sale of smart-asset on the NEM blockchain platform.'”
Another issue focuses on the reported $735 million in initial coin offering raised, which would put them in the top three valuations for Initial Coin Offerings, or ICOs. Reports indicate that all of the Petros held are on three addresses and all transfers have been to one address.
“You have to be really naive to believe the government has in fact sold any petros because the blockchain shows all 100 million petros are still controlled by one address,” software designer Alejandro Machado told Florida’s WLRN Public Radio. WLRN noted that this address belongs to the Venezuelan government.
This suggests that the initial coin offering figure has been manipulated and that the Petro hasn’t actually raised any funds.
It’s been noted that Petro also contradicts the very core of cryptocurrencies— decentralization— due to its attachment to the Venezuelan government; instead, it’s more of a digital token under government control that claims to be backed by oil.
As Ars Technica reported:
The Venezuelan government has portrayed petro tokens as backed by Venezuela’s vast oil reserves, but they’re not. The government is merely promising to accept tax payments in petros at a government-determined exchange rate linked to oil prices. Given the Venezuelan government’s history of manipulating exchange rates, experts say investors should be wary of this arrangement.
Chris Burniske of venture capital firm Placeholder told Bloomberg that “the Petro is really a top-down hierarchically controlled asset, and it’s much more akin to a new way to tokenize oil.” Burniske added that “with the Petro, we really have a new wrapper around oil.”