Terra Tumbles, so does Privacy in the EU
"Never let a good crisis go to waste."
Terra Tumbles, Government Seizes the Moment
A dramatic domino effect began this week when Terra’s UST stablecoin became unpegged from USD and collapsed in dramatic fashion. It currently sits at just under $0.12 at time of writing. LUNA, the coin that is meant to help UST maintain its peg, collapsed from over $100 just over a week ago, to now being worth just fractions of a penny.
TerraUSD (UST) uses a mathematical algorithm to stabilize the price of the LUNA token, using what are called “on-chain mint and burn mechanics”. Theoretically, this system ensures that $1 worth of UST can always be swapped for $1 worth of Luna, but here is a fantastic thread that explains why it all collapsed.
The ripple effects of this collapse reached the entire crypto ecosystem, spurring a downward spiral of panic selling and severe market volatility that also affected the Tether, peg as well as bitcoin. On Monday, LFG (Luna Foundation Guard) announced that they had sold off 80k BTC (virtually all of the $3 billion in BTC reserves), trying to defend the UST peg. As crypto twitter observed, given that $3 billion in BTC suddenly hit the market at once, it’s remarkable that all we got was a 28k dip, with BTC now sitting stable at 30k.
Terraform Labs CEO, Do Kwon, released a new revival plan today, saying “Terra is more than UST.”
The aim is to fork Terra into a new chain that is not attached to UST. Holders of the existing LUNA (to be renamed luna classic: LUNC) would be airdropped the new token. The new chain would be community-owned, and Terraform Labs would not receive any of this initial airdrop. The vote for the proposal begins on May 18, and if it passes it will go into effect as early as May 27.
The collapse of the Terra ecosystem has devastated many. It can be difficult to acknowledge responsibility for one’s own actions, especially when the decision to take extreme risk results in catastrophic loss. So some are taking out their outrage on Do Kwan himself, with threats against Do Kwan and his family’s safety resulting in his wife seeking emergency police protection.
Because you should never let a good crisis go to waste, the government is also trying to get involved. US Treasury Secretary Janet Yellen took the opportunity to speak out on the dangers of unregulated stablecoins at a Senate Banking Committee hearing Tuesday:
“I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.”
They are continuing their “I told you so” narrative — that stablecoins should only be issued by federally regulated banks (which was recommended in President Joe Biden’s Working Group on Financial Markets’ Stablecoin Report in November).
An EU commission is also strongly considering banning large-scale stablecoins.
Terraform Labs is already under investigation by the SEC for its controversial Mirror Protocol, which allows users to create tokenized versions of publicly traded stocks. But to be fair, the SEC wants to investigate/shut down all of crypto.
We’ll keep you updated next week with what’s going on in the crypto apocalypse, but in the meantime here is some sage advice:
“With great returns comes great risk and great responsibility” - said someone, probably.
“Please Sir, I’d Like Some More Invasion of Privacy”
Newly proposed regulation from the EU would like total access to your digital lives. The EU wishes to be able to look into private digital conversations, private digital storage, and private devices, all without a warrant, in the name of combating CSAM (Child Sexual Abuse Material).
The official press release states:
“The proposed rules will oblige providers to detect, report and remove child sexual abuse material on their services. Providers will need to assess and mitigate the risk of misuse of their services and the measures taken must be proportionate to that risk and subject to robust conditions and safeguards.”
It would mandate client-side scanning of devices in a mass-surveillance push to look for anything that relates to abuse. What makes the proposal remarkable is that it’s not just scanning devices for known CSAM material, but to detect “grooming”. Matthew Green, renowned security expert and cryptography professor, explains what this means:
"To detect 'grooming' is not simply searching for known CSAM. It isn’t using AI to detect new CSAM, which is also on the table. It’s running algorithms reading your actual text messages to figure out what you’re saying, at scale. … Once you open up “machines reading your text messages” for any purpose, there are no limits.”
The proposal has been described as the most sophisticated mass surveillance machinery ever deployed outside of China and the USSR.
These automated tools will comb through every private activity on your device, make countless mistakes, and report their findings directly to law enforcement.
Once again the shameless tactic of hiding mass surveillance under the guise of “saving children” has reared its head. Even if this EU proposal is defeated, it won’t be the last time we see this emotional manipulation furthering the agenda of the surveillance state. The privacy battle is well and truly here.
Matthew Green and I dive into all the details in our latest live stream:
And Finally, a BIT of GOOD NEWS
Germany announced on Tuesday that crypto gains on BTC and ETH held for more than a year will not be taxed. The news was released by the German Federal Ministry of Finance’s latest guidelines for framing the taxation of cryptocurrencies — the document identifies crypto as an asset that falls into alignment with Section 23 of the German Income Tax Act. It states that an individual may sell their crypto assets free of capital gains tax as long as they have been in their possession for more than a year (as opposed to the previous ten-year holding period). This extends to staking and lending as well:
“If you hold your crypto for over a year as an individual, you do not have a tax liability on your earnings. In other words, for long-term holdings over one year, any increase in the value of your cryptocurrency is tax free.
For example, if you purchased 100€ worth of bitcoin and sold it more than a year later in exchange for 400€, the 300€ earnings would not be taxable.”
While there are many more logistics to be explained, the department kept the doors open for discussion:
"The federal Department of Finance will continue to address income tax issues related to virtual currencies and other tokens in close coordination with the highest federal-state financial authorities and with input from associations."
By Will Sandoval, NBTV Associate Producer, and Naomi Brockwell.
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