Isaac Kamlish, Nathan Cohen and Isaac Bentata – aged 23 to 25 – huddled around their laptops earlier this week and helped launch the first-ever sale of unique digital collectibles by a national government.
Within 24 hours, kyiv, using technology developed by the trio, sold over 1,200 non-fungible tokens, or NFTs, raising around $600,000 to help fund its defense against Russia.
A playbook was old school. Kyiv has clawed back around $1 billion in war bonds sold to people and institutions in Ukraine as residents show a willingness to lend to the government even though it’s not guaranteed they’ll get all their money back.
President Volodymyr Zelensky’s administration has also encouraged potential donors around the world to transfer cryptocurrency directly, an effort that has raised more than $56 million, according to analyst group Chainalysis. And Wednesday’s NFT sale saw collectors from Los Angeles to Barcelona rushing to take part in what they saw as a major moment for Ukraine and the crypto world.
“The war in Ukraine is devastating, and it will be in the history books,” said Ben Jacobs, co-founder of Scenius Capital, a digital asset investment firm. “This use of cryptographic technology is also historic in itself.”
Jacobs, who is based in Venice Beach, Calif., bought two NFTs, spending a total of $1,100, including small transaction fees. About $1,000 in ether — the cryptocurrency typically used for NFT sales — went to the Ukrainian government.
A fundraising rush
“Our budget gap is much wider than expected when we started this year,” Yuriy Butsa, Ukraine’s commissioner for public debt management, told CNN Business, referring to the gap between government revenue and spending. government.
To help bridge this gap, the government launched an unprecedented effort in the five weeks following Russia’s invasion to raise funds for its cause globally.
“These guys are getting creative,” said Viktor Szabo, a fund manager specializing in emerging market debt at British investment firm Abrdn.
kyiv turned to proven channels to raise funds. About $4 billion in emergency funding from multilateral organizations, including the International Monetary Fund and the World Bank, has already been received by Ukraine, and another $2 billion is being negotiated.
It also uses classic war bonds, which governments issue during conflict to gain support from citizens. They are also useful for fighting inflation, as they pull money out of circulation at a time when there are often product shortages.
Ukraine raised about $1 billion through five local currency bond sales in March. Butsa said there was significant demand from institutions and individuals. The proceeds go into the government pot and are then used to cover expenses such as paying pensions or emergency services.
“There are a lot of people buying $10,000, $5,000 of this instrument,” Butsa said.
Buying these bonds in the current climate requires a leap of faith. One-year bonds issued last month had a yield of 11%, indicating the very high level of risk. If Zelensky’s government is overthrown or goes into exile, or if a long war devastates the Ukrainian economy, repayment would not be a sure thing.
S&P Global Ratings lowered its credit rating for Ukraine shortly after the invasion. He said that while he believes the international community will help Ukraine meet its financing needs over the next 12 months, there is “potential for governance disruptions, putting debt servicing at risk. commercial”.
Butsa said the Ukrainian government was currently working “24/7” with its bankers to develop a new dollar bond that could be sold to foreign investors, many of whom are eager to support kyiv but are paralyzed by capital controls that prevent them from earning returns in Ukraine’s currency, and other logistical issues.
“Our intention is to provide [an] instrument where every person who wants to support Ukraine sitting in [the] The United States, having its account with local financial institutions, can easily support us,” Butsa said. His team is also exploring options within the European Union.
Despite support for Ukraine, professional investors – who have a duty to protect their clients’ money – may be nervous about lending money to the Ukrainian government at this time, even though it may find a way to offer bonds abroad.
“We cannot invest in an asset where we see [a] high probability that this money will not be returned,” Szabo said, although he added that he believed the market could become attractive once the war was over.
Work the crypto angle
Financing options that do not involve borrowing are also attractive, as Ukraine fears increasing its debt significantly.
“We don’t want to end up, as the war enters the reconstruction phase, spending more on debt servicing than we pay on rebuilding infrastructure,” Butsa said.
This is where crypto donations and NFT sales can come in. For weeks, Ukraine has encouraged people to transfer bitcoins and other cryptocurrencies to official social media accounts. This effort has allowed the government to access a large pool of small donors who do not have to worry about complex financial agreements or currency conversions.
The effort entered a new phase this week with the official NFT auction. Fans around the world bought digital images made with local artists that combined colorful imagery with wartime artifacts such as tweets.
Kevin Lista Navarro, a 26-year-old financial adviser in Barcelona, has already made a donation to support refugees from Ukraine. Still, he saw the NFT auction as a unique opportunity and bought two.
“Thanks to this technology, you now have the opportunity to contribute to the cause and also receive a commemorative piece of art in return,” he said. “Who knows what they might be worth in the future.”
Kamlish, Cohen and Bentata – the London team whose fledgling platform, FAIR.xyz, was used to handle the sale – got the job after sending cold emails to members of the Ukrainian government after the first announcement of the NFT project. They’ve been involved for the past two and a half weeks, shooting late at night and running on adrenaline to prepare for the launch.
“It was really crazy,” Bentata said.
The process went smoothly, despite heavy website traffic that could have come from malicious actors, Kamlish added.
“How Ukraine has really leaned into crypto as a way to get financial support…it shows the value of governments leaning into crypto and NFT technology, instead of rebelling against it just because it’s is new and scary,” said Jacobs of Scenius Capital.