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War bonds, NFTs and crypto: How Ukraine is funding its defense

<i>Josep Lago/AFP/Getty Images</i><br/>War bonds
AFP via Getty Images
Josep Lago/AFP/Getty Images
War bonds

By Julia Horowitz, CNN Business

The epicenter of the latest effort to raise money for Ukraine was a bare-bones office above a bakery in north London.

Isaac Kamlish, Nathan Cohen and Isaac Bentata — ages 23 to 25 — gathered around their laptops earlier this week and helped launch the first-ever sale of one-of-a-kind digital collectibles by a national government.

In 24 hours, Kyiv, using technology developed by the trio, sold more than 1,200 non-fungible tokens, or NFTs, raising about $600,000 to help fund its defense against Russia.

The auction, which made novel use of blockchain technology as a lever of wartime financing, underscores how Ukraine’s government is using both new and traditional tools to generate the cash it needs to survive the crisis.

One playbook has been old school. Kyiv has hauled in roughly $1 billion from war bonds sold to people and institutions in Ukraine, as residents show a willingness to lend to the government even if it’s not guaranteed they’ll get all their money back.

President Volodymyr Zelensky’s administration has also encouraged would-be donors around the world to directly transfer cryptocurrencies, an effort that’s raised more than $56 million, according to analytics group Chainalysis. And the NFT sale on Wednesday saw collectors from Los Angeles to Barcelona rush to participate in what they saw as a major moment for both Ukraine and the crypto world.

“The Ukraine war is devastating, and it will be in history books,” said Ben Jacobs, the co-founder of Scenius Capital, a digital asset investment firm. “This usage of crypto technology is also historical in its own right.”

Jacobs, who is based in Venice Beach, California, bought two NFTs, spending a total of $1,100 including small fees related to the transactions. About $1,000 in ether — the cryptocurrency typically used for NFT sales — went to Ukraine’s government.

A fundraising rush

In Europe and the United States, people have been displaying their solidarity with Ukraine by hanging blue and yellow flags from buildings, hosting local fundraisers and updating their avatars on social media.

But Zelensky’s team needs more than words and gestures. To keep Ukraine’s government running and equip its military, Kyiv requires cash — and lots of it. It has estimated that the war could cost the country $565 billion. Its economic output in 2020 was $155 billion.

“Our fiscal gap is much wider than we 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.

To help bridge that divide, the government has launched an unprecedented effort in the five weeks since Russia’s invasion to raise money for its cause on a global scale.

“These guys are being creative,” said Viktor Szabo, a fund manager who specializes in emerging market debt at the UK-based investment firm Abrdn.

Kyiv has turned to tried-and-true channels to raise money. About $4 billion in emergency financing from multilateral organizations, including the International Monetary Fund and World Bank, has already been received by Ukraine, and an additional $2 billion is being negotiated.

It’s also utilizing classic war bonds, which governments issue during a conflict to tap support from citizens. They’re also helpful in fighting inflation, since it takes cash out of circulation at a time when there are often shortages of products.

Ukraine raised about $1 billion through five sales of local currency bonds in March. Butsa said there was significant demand from both institutions and individuals. The proceeds go into the government’s 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.

Purchasing these bonds in the current climate requires a leap of faith. One-year notes issued last month had a yield of 11%, indicating the very high level of risk. If Zelensky’s government is toppled or goes into exile, or 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. It said that while it believes the international community will help Ukraine meet its financing needs over the next 12 months, there is the “potential for governance disruptions, putting commercial debt servicing at risk.”

Butsa said Ukraine’s government is currently working “24/7” with its bankers to develop a new dollar bond that could be sold to foreign investors, many of which are eager to back Kyiv but are hamstrung by capital controls that prevent them from collecting returns in Ukraine’s currency, as well as other logistical issues.

“Our intention is to offer [an] instrument where every person who wants to support Ukraine sitting in [the] US, having their account with the 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 Ukraine’s government right now, even if it can find a way to offer bonds abroad.

“We cannot invest in an asset where we see [a] high probability of that money not being returned,” Szabo said, though he added that he thinks the market could become attractive again once the war ends.

Working the crypto angle

Financing options that don’t involve borrowing are also appealing, since Ukraine is wary of dramatically increasing its debt load.

“We don’t want to end up, as the war comes to the reconstruction phase, to spend more on the debt service than we pay on rebuilding infrastructure,” Butsa said.

That’s where crypto donations and NFT sales can come in. For weeks, Ukraine has encouraged people to transfer bitcoin and other cryptocurrencies on official social media accounts. The effort has given the government access to a large pool of small donors who don’t need to worry about complex financial agreements or currency conversion.

As of March 28, Kyiv had raised roughly $56 million in crypto with a median donation of about $30, Chainalysis told CNN Business. Alex Bornyakov, Ukraine’s deputy minister of digital transformation, said last month that the money had been used to buy bulletproof vests, helmets, walkie-talkies and medicine.

A sale of an NFT of Ukraine’s flag by UkraineDAO, an initiative backed by a member of the Russian activist group Pussy Riot, raised more than $6.7 million.

The effort entered a new phase this week with the official NFT auction. Supporters around the world purchased digital images made with local artists that combined colorful imagery with artifacts of the war such as tweets.

Kevin Lista Navarro, a 26-year-old financial adviser in Barcelona, previously donated 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 possibility to contribute to the cause and also receive in return a commemorative work of art,” he said. “Who knows what they might be worth in the future.”

Kamlish, Cohen and Bentata — the team in London whose nascent platform,, was used to run the sale — got the job after cold emailing people in the Ukrainian government after the NFT project was first announced. They’ve been involved for the past two-and-a-half weeks, pulling late nights and running on adrenaline to get the launch ready.

“It’s been really crazy,” Bentata said.

The process went smoothly, despite heavy traffic to the website that could have come from malicious actors, Kamlish added.

“How Ukraine has really leaned into crypto as a way to garner support financially … it shows the value of governments leaning into crypto and NFT technology, as opposed to rebelling against it simply because it’s new and scary,” said Jacobs of Scenius Capital.

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