Unchained - The 5 Biggest Lessons From Terra/Luna's Collapse, According to Tascha Che - Ep.354

Episode Date: May 20, 2022

Tascha Che, founder of Tascha Labs, unpacks the Terra/Luna debacle and reveals what she believes are the five main takeaways from its collapse. Here are some highlights from the show: how stablecoin issuers make money what caused Terra’s downfall why Tascha is bullish on algo stablecoins whether she believes undercollateralized stablecoins can work how fast market cap expansion without actual network effect equals death for stablecoins why she doesn’t believe a stablecoin’s network effects mean much for its success why small(er) stablecoins are better how blockchains mirror national economies  which stablecoins is Tascha excited about how FRAX is a stablecoin that resembles fiat currencies whether the UST collapse will affect the stablecoin development and further regulation how cross-chain agreements would be helpful for the stability of the crypto ecosystem Thank you to our sponsors! Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021       Coinchange: https://coinchange.io  The Graph: https://thegraph.com/graphday    Episode Links   Tascha Che Twitter:  https://twitter.com/TaschaLabs Tascha Labs:  https://taschalabs.com/  Tascha’s thread on nonobvious lessons from the Terra fallout:  https://twitter.com/TaschaLabs/status/1526276308119932928?s=20&t=SCxfocBJoQqTEvCHadjYxA Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone. Welcome to Unchained. You're no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first Mean Tree meter reporter to cover cryptocurrency full-time. This is the May 20th, 2020 episode of Unchained. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code, Laura. Link in the description. Point change is the easiest way to earn passive income using crypto. You can safely deposit cash or cryptocurrencies to earn up to 20% annual yield. There is no lending or market risk, just simple, high return yield farming. Create an account today at tri-defi.c. And receive 40 USDC. That's tri-defi.cc slash uncccc.

If you're trying to break into Web3 or help build it, you'll want to come to Graph Day from June 2nd through the 5th in San Francisco. Get your ticket at thegraph.com slash graphday. Today's guest is Tasha Che, founder of Tasha Labs. Welcome, Tasha. Hi, Laura. How are you? Great. So happy to have you here. This week, you wrote an epic thread on the collapse of Tara and Luna. and what you said were that there were five non-obvious lessons from this viasco.

Before we get to those, can you give people a general summary of what kind of business you think the stablecoin business actually is? So in general, I think, you know, stablecoin is in the business of transforming risk or volatility. So the buyer of stable coin, you know, average users, you don't like volatility of your token prices going up and down. you prefer to hold a stable value of the asset. So that's why you buy stable coins. So basically, you sell that volatility to the stable coin protocol, and they bought the volatility, and they give you this asset that promise to always be priced at one.

So it's like a, in that sense, you can think of them as in, you know, a insurance business, that ensuring there's some kind of price stability of your asset. Or you can think of them as in the banking business, basically, you know, you deposit variable priced assets and they give you this certificate, meaning the stable coin that is priced at 1 that has, you know, 0% interest rate per se, right? And then, you know, basically you'll hold that certificate and it's promised to be to be worse $1. So I think, you know, when you look at stable coin protocols, how they make money, right?

So where does the value audit come from? Part of value added is they provide a service of guaranteeing the stable price. So that is a feature that is demanded in the market. That's why it has a positive value added. And also, so that's also, you know, one way they can make money is, you know, have a surcharge to charge for the service that they provide. In terms of specifically how this charge is operationally being collected, you know, whether it's through a redemption fee, whether it's through a token that is served

as a sign-r-rich equity token or some other mechanisms that specific can vary, but this is one service, value-added service they can provide. The other way they can make money is obviously through some kind of arbitrage of tokens if you deposit variable price tokens that has limited supply. So over time, you know, other things equal, those token prices should go up vis-a-vis U.S. dollars. which has a nominal depreciation, you can think of the nominal GDP, because the money supply of US dollar grows, you know, broadly aligned with the nominal GDP growth, which is about 5, 6% a year. So you think of that as a nominal depreciation against a fixed supply assets of USD token.

So in that sense, over the long run, these protocols, there is a long-term arbitrage opportunity there, even if they don't do anything short-term investment, with your assets. So that's how I look at these. You know, you can think that as an insurance business, as a banking business. And in your tweet thread, you laid out what seems to be a viable scenario

in which a stable coin issuer could make money. But obviously with Tara Luna, things went wildly wrong. What do you think caused Tara Luna's downfall? Okay. So this is a very interesting question because, you know, after the Luna fall, a lot of people are saying,

okay, under-collarized stable coin definitely do not work. Well, I think that's wrong. I think they definitely do work. Why do I think so? Because they do work in real life. There are about 200 Fiat currency in the world, and about 40% of them run a fixed exchange rate, either vis-a-vis U.S. dollar or vis-a-vis a euro or a basket of currencies.

So you can think of 30, 40% of fiat currencies in the world try to maintain a stable peg versus a larger Fiat token. And about 30% of them runs a so-called floating exchange rate. And the rest of them are sort of in between. So central banks usually monitor the value of their currencies, their exchange rate to make sure it's stable, it fluctuates in a kind of a predefined band. But it's not like a fixed per se.

But my point is, you know, a lot of the Fiat currencies in the world, you can think of them as stable coins. And they are under-collarized. Why? Because you can look at foreign reserve to broad money ratios of all the fiat currencies in the world. I think on the average, it's like 35%. So it's not like if you have a fixed exchange rate vis-a-vis the U.S. dollar.

For example, if you're a UAE, right, if you're Panama, you run a fixed exchange rate vis-a-vis a U.S. dollar. But does that mean that every money that you issue is backed by $1.1? of USD, no. It's about, you know, again, 35% reserve to broad money ratios as the average. So you can say, oh, all these fixed exchange rate tokens, they are under-coradized stable coins. But there are some important differences here than, you know, obviously the question is, okay, why do these work? Why does Luna not work? I think the most important difference here is that does the token itself, does this currency itself have a uncorrelated demand with

the demand for a stable asset? So in fiat currency's cases, you know, every country is, you can think of it as a sovereign economic system. So you have real world trade and commerce activities. Those all use the local fiat currency. So it's part of the local economic system and this demand is being supported by the real economic activities. You use these to pay transactions. Local prices are priced in local currency. Governments use these to accept tax payments, and they pay their employees of public sector using their local currency. So all these activities are using the local currency as a medium exchange and a unit account,

and those are the organic natural demand for the local currency. That is uncorrelated with the need to pack. against the US dollar or not. So that means, you know, you have a natural floor of demand, as long as the economic activities does not go to zero, which is pretty improbable. But if you look at online stable coins, you do not have that. Luna, for example, UST is supported by the Luna token,

which you can think that as the collateral asset for the UST. But, you know, Luna has a ecosystem, yes, but it's very, very small compared to any of the real economies, even the small nation states. So you have in the lunar ecosystem, you know, 70, 80% of the, you know, TVL used to be the anchor protocol, which it was entirely right, writing on the UST deposit rate of being like a 20%, right? So that's entirely tied to UST. And you also, the rest of the ecosystem liquidity, a large part of it is just lunar staking, token staking. And you have some, D-Fi protocols, but those also, you know, tend to center around the use case of Luna and

UST. So the ecosystem is really, it's quite small. You don't have the luxury of a typical fiat currency being like being as a result, a collateral asset with uncorrelated demand. Yeah, and you sort of started a hint at this, but another part of the tweet thread was that you said another lesson from this was that fast expansion without actual network effect equals and then you put a skull and crossbones, which you were kind of implying that anchor kind of drew a lot of people in really fast, but that it wasn't actually creating a network effect, which I, you know, which also really struck me. I don't know if you wanted to add more on that. Yeah. So, so, you know, back in the days, you know, I put out some,

some tweets on, on Twitter about the sustainability of Luna and then the lunar, the, the, the, the to try but try to argue with me and say, you know, look at the UST adoption growing so fast, there's a huge network effect. In my view, there's zero network effect for a stable coin because your stable coin is a utility product. The entire feature of the stable coin is to guarantee it's worth $1. If you take that feature away, there's nothing left. So this is another important differentiation from any Fiat currency that runs a fixed exchange rate because You can have a Fiat token. You can, you know, pack to a U.S. dollar.

You have a stable exchange with that's all well and good. But still, you are your own sovereign currency. The feature or the selling point of your currency is not like you're worth $1. The selling point is you're providing a service in real economy as a medium exchange and the unit account in your own economy. So if you cannot maintain that, if you can maintain a $1. Great. If you cannot, well, that's not the end of the world.

you still have an economic ecosystem that runs on your local currency. Versus the stable coin, the entire value proposition, rise on the point that you are being worth $1. If you take that away, nothing is left. That's why I think it's kind of a misguided effort for a lot of Elgo Stablecoin protocols to try to business death their adoption, try to get into more DefiPy protocols to be used as collaterals or involved in Defi Barron and Landing

or to get on other chains. I think all these efforts, if your underlying collateral assets, do not have a good network effect, like a Fiat currency does. Then most of these efforts will be wasted. Because if you lose a peg, it's like that's the game over.

Yeah. So in a moment, we're going to talk about also the network effect for the reserve asset. But first a quick word from the sponsors who make this show possible. Graph Day will be a giant leap in the growth of Web3. Whether you're just breaking into Web3 or already building and defining it, the future will meet the present in SF, June 2nd through 5th.

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No minimums, no obligations, just high yield. It's time for a change. Create an account today at tri-defy.c-c-unc to receive 40 USDC. That's tri-defi.c-c-slash-UNcc. Back to my conversation with Tasha. So another point, again, that just really struck me was that you said it's a network effect for the reserve asset, in this case for Luna, not for the stable coin itself that matters. And that to me said everything because that was precisely why Luna just plummeted the second that the peg wasn't holding because the only reason for its existence was just to try to prop up UST. But since that was already falling, there was no other reason for anybody to try to try and to own Luna and frankly hold onto it rather than sell it immediately. So, yeah, which I just thought was so spot on.

But do you want to talk about that point? And then also another one of your takeaways, which was you said, smaller is beautiful, which I believe you were referring to just the general ecosystem of any particular stable coin. Yeah, so the network fact, to me, you know, the closest to resemblance I can think of as a typical fiat currency in the crypto world would be the blockchain platform's native token for those blockchain platforms that has a more diverse set of use cases.

So I'm talking like, you know, Ethereum or, you know, even you can include new ones, Solana Avalanche. These are apparently all very new, so their network effect is pretty weak. And all the use cases on chain are quite correlated. Right now you have defy, you have NFT, not much at anything else, right? But you can think of these still as like an emerging economic ecosystem.

My framework of looking at these platforms will be like, you know, national economies in the universe. I think they're going to be in coming years that grow to be more complex, more diversified economic ecosystems that are similar, that mirrors the fiscal economies in the nation states. So I think the native tokens for those will be a good place to start in terms of thinking of your reserve assets. assets. So and if, but if you're like a stable coin that you, you, you have like a brand new reserve assets like, you know, for X, for example, they have this, you know, essentially like

a sign or a share token, which is a freaks share. So, but you think of this token, it doesn't have much of else to use cases. Okay, you can use it like, you know, staking something in D5, but that's kind of a sort of a semi-ponsie-ish, you know, huge cases, I would say, right? So then you want to think about how do you, how do you create an uncorrelated organic on-chain use cases for these collateral tokens? The network effect for those tokens are going to shore up your demand when things go haywire. So that's one. And then like you said, also I mentioned, you know, smaller is beautiful because, you know,

obviously when you invest in any enterprise, any project, any stable, project also. You want it to be big. You want it to make as much money as possible to become a market leader. But this is also a kind of a special case, a special sector, because it's really a crucial infrastructure in the on-chain economy for any like a blockchain platform. So you think of, you know, if you build a new layer once, what kind of key infrastructure do you need? You need a bridge, you need an AMM, and you need a stable coin. Those are like a key infrastructure for for the on-chain, like a financial system to function smoothly. So I think it's already, this stable coin sector already serves a very, you know,

systemic important role in the crypto economy. On top of that, so if you, if you, if these protocols grow really big, and like in the Luna case, you know, they depacked and they don't have any lender of last resort to actually build them out, to actually help help to buy the UST, right? with national economies in nation states, at least you have some lander last resort of, you know, international lending facilities that you can borrow from other countries, essentially, to temporarily, like, assure up the demand of your native fiat

if you have a drastic capital flight or something. So in the stable coin world, you don't really have that. Whether we are going to, we will see something like that, being like a cross-protocolal insurance mechanism or lender of last resort that is a private sector based. I don't know. But right now we don't. That means the bigger you are, the harder it is to find people to rescue you because there are a handful of the larger players with sufficient liquidity in the crypto space. You can name them. You can pretty much count them with your two hands. But if your market cap goes beyond that, if you like deep pass severely enough,

you just really don't have people to rescue you. So I think a more healthy ecosystem would be, if we have 10 to 20 smaller medium-sized stable coin projects, they have their own tagging designs, they have a separate collateral basis. That would be a more resilient ecosystem compared to what we have now, which you have USDT, USDC,

and the third one used to be UST. So, yeah, I think this is something for also for the blockchain platforms themselves to think. Obviously, like protocols like near, they're already, you know, doing that. Though I don't know if their motivation is as I described. But if I were a layer one protocol, this will be something that I will build or at least collaborate with some projects to build on my platform as a sort of semi-public good because this is like basic infrastructure. It's not necessarily I would necessarily need this.

protocol to be super big, but, you know, it provides a key service on my platform, that's all. So I think a smaller, smaller in size, that in itself has, you know, more, more resilience building. And so at the moment, the Tara community is voting on a proposal put forward by Doe Kwan, the co-founder of Terraform Labs, in which he would like to fork the chain and call the original chain Terra Classic and basically give various people who held either Luna or Tara previously new tokens. What do you think of that plan and also just in general, what do you think would be the best way for Tara to move forward? Oh, I do not have the answer for Tara, basically. But the thing is, if you, well, you can argue,

okay, you have brand name recognition, though right now, you know, how much the brand equity is worse, whether it's positive value or negative value, I don't know. And you also have a community of people, right? Though, like, a lot of people are pretty grudgy, like right now, pretty angry, right? So if you want to build a new stable coin, you probably want to like over-collateralize go with the, you know, more of a die model, for example, basically to make sure the probability of this single unpack is extremely. extremely small. If they want to revive the thing,

I don't, I don't, I have no idea about the prospect of how successful that would be. And you mentioned Frax finance earlier. But given everything that you've said, which stable coins are you excited about? I'm, I'm excited about the USDA. I, I, you know, for you, you, you can argue, okay, centralized, they can scale, you know, confiscation risk, so on so forth, but at least it's backed by actual US dollar cash or liquid US dollar assets. So utility-wise, you should, you know, the pack should stay, you know. So if we're talking about stable coin is a utility product, then this product fulfills its

utility pretty well. So in terms of, you know, stable, Algo stable coins, I think people are, there are different designs. People are exploring different mechanisms. But I think there has been some consensus emerging that you need some kind of collateral. It cannot be just a dynamic adjustment, you know, scheme like Luna. So, the facts that I mentioned, there are one model, which is, if you think about it, it's kind of like a fiat currency that runs a peg. exchange rate because you are collateralized,

Fiat currency, they have foreign reserves that they can use to open market operation to defend their currency. So in fact's case, it's USDC, right? So it has foreign assets. The percentage of foreign assets should be pretty high. The rest of your collateral does not have a, you know, does not have a uncorrelated demand on chain right now.

So I think if you have a collateral token, that has a strong network effect. The stronger it is, the lower your reserve ratio can be. As I said, the medium reserve ratio for Fiat currencies are 30, 35%. All right. Well, I guess this brings us to the last point that you made in your tweet thread, which is you said regulatory standards are nuisance until they're not. So what do you think will happen regulatory-wise now that Tara Luna

has imploded, and how do you think that will affect the growth of the stable coin space from here on out? Obviously, I'm not a government, so I cannot say what governments are thinking. But I think the 20 is drawing a lot of tension, right? So especially in the countries that issue the fiat currency that stable coins are packed on, meaning United States, the regulators should be thinking pretty hard about how to regulate this. And the frameworks they would use, you know, like we mentioned at the beginning, you can think of these businesses as a similar business model as insurance or banking.

So I think a regulatory frameworks in those sectors should at least lend some viewpoints to the regulations of stable coins. The other thing is there is also, you know, when I say regulatory standards, it doesn't necessarily have to come from government, right? So the other day I posted on Twitter that, you know, I think a stable. industry can use something like a Basel agreement. So if people are not familiar with the Basel agreement in international banking, it's basically a multilateral cross-country kind of a standard, banking standard set up in the 1980s after a bunch of banking crisis in the 70s in multiple countries. So, you know, the Basel agreement is like, it has a set of standards, you know, as a bank, your capital ratio should be this much, your leverage ratio.

should be this much, your liquidity ratio, so on and so forth, right? But Basel itself does not have any regulatory authority. So it's not like as a country's, you know, a financial regulator, it has a legal mandate to actually enforce any of this. It's just a, you know, international agreement. It's a best practice. If you want to join, great. If you don't want to join, nobody is forcing you. So, but if you join, you know, this is a, you know, brownie point on your reputation, obviously, the bank, right? So it can facilitate, it can, it can help if you, if you, you know, comply with the Basel agreement, you know, other, other banks who do the same, look at you favorably, they're more inclined to do business with you and you have more, you know, confidence

among your users. So again, this is all voluntary set up as a multilateral, you know, agreement to preserve the reputation of the industry, essentially. So it's a public good, that is not legally enforced or enforced by, you know, any country's regulatory regimes. So I think something similar will be, you know, really useful for the stable coin industry. Something that, you know, cross different protocols, you know, come together to think about what would be the standards that the industry should abide by. You know, without having any legal enforcement or outside regulators coming to regulation threat, you bang on your head. Yeah, some kind of mandate.

Yeah, I totally agree. And by the way, people definitely should check out this thread. And you might have even put it into a post, I believe, or at least some, I feel like I saw a post on this. But you have a newsletter. Do you want to tell people where people can find that? Yeah, sure, just go to Tasha Labs.com slash newsletter. It's a free newsletter.

I put out industry analysis and Web3 outlook to give people an edge and to make people smarter about this industry. It's totally free. It's just that I enjoy doing that. Great. Well, it's been so much fun having you on Unchained. Thanks for coming on the show. Glad to be here.

Thank you. Don't forget. Next up is the weekly news recap. Stick around for this week in crypto after this short break. Bet mode activated. The scorebed app here with trusted stats and real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking.

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Get up to 8% cash back instantly, plus 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions. Download the crypto.com app now and get $25 with the code Laura. Link in the description. Thanks for tuning in to this week's news recap. Tara struggles to revive amidst infighting and regulatory pressure. In the wake of UST's collapse, the Tara Luna community sought a way forward, even as it demanded more details in what happened to the Luna Foundation Guard's $3 billion

crypto reserve, and as regulators came knocking. Terra Forum Labs co-founder, Doe Kwan, made two. proposals to revive the chain. Both were massively criticized by the community and even by big names like Ethereum creator Vitalik Boudarin and Binance CEO Cheng Peng Zhao. Jo-Quant's third proposal consisted of forking Terra into a new chain without an algorithmic stable coin. The idea is to rename the current chain Terra Classic and the current native token as Loon C Luna Classic. The new chain, Quant proposes, would be called Terra, with the native token Luna. The new chain would have one billion Luna tokens and would be

airdropped across Luna and Classic Stakers, Luna Classic holders, residual U.S.T. holders, and essential app developers of Terra Classic. The proposal was put out for an on-chain vote on Wednesday. As of Press Time Thursday afternoon, it seems it is going to pass as it has the support of Terra Form Labs and Terra Builders Alliance, a community of developers and builders within the Terra ecosystem. However, some validators are not fans. All-known CEO, Konstantin Boiko Romanovsky, said to the block, the whole governance process of this proposal looks like a dictatorship model. It looks like the launch of the new chain is decided even before voting is finished. As for the $3 billion in Bitcoin reserves, the Luna Foundation Guard,

which was in charge of defending the US TPEG with the Bitcoin, finally shed some light on what happened. According to an announcement on Twitter, when UST started depegging, LFG said it converted the 80,000 Bitcoins, or $3.1 billion, in its reserve to UST, to defend the peg. After the massive sell-off, it was left with a reserve of $313 Bitcoin or $8 million. According to Elliptic, a blockchain analytics company, 52,000 Bitcoins were moved into Gemini, and the remaining 28,000 were moved into Binance. However, Tom Robinson, co-opening. founder of Elliptic, said to CoinDesk that, beyond that, we can't really see how it's been used. In other related Terra news, South Korean authorities are now investigating the Terra collapse.

A specialized financial crimes unit called Grim Reaper will look into the methods Terraform labs used to attract investors. WANT has been charged with tax evasion and faces a penalty of $100 billion, or $78.5 million, for failing to pay corporate and income tax. The Terraform Labs legal team resigned shortly after the crash, making these issues harder for Kwan to navigate. Tether releases its long-awaited attestation report. On Thursday, Tether, or USDT, the world's largest U.S. dollar stable coin released its first attestation report in six months. After the U.S.T chaos, this report was highly anticipated, as investors have been cashing out of stable coins, with U.S.D.S.D. supply, dropping $7 billion. in the past few days alone. Tether reported a reduction in its commercial paper holdings by 17%

from December 2021 through March 2022, from $24.2 billion to $19.9 billion. USDT has a market cap of $74 billion and is fully backed, according to the attestation made by accountancy firm MHA Cayman, which reported that USDT is backed by assets that amounted to at least $83 billion. dollars. This latest attestation further highlights that Tether is fully backed and that the composition of its reserves is strong, conservative, and liquid, said Paolo Ardoino, the CTO of Tether in a statement. As promised, it demonstrates a commitment by the company to reduce its commercial paper investments. In other stablecoin news, Day, an algorithmic

stable coin from the D-Fi protocol, Deuce Finance, lost its peg against the dollar this week. Day is now trading around 60 cents, according to coin market cap, after hitting a low of 51.7 cents on Monday. Chinese Bitcoin miners are back. According to new data from the Cambridge Center for Alternative Finance, or CCAF, China has reclaimed its place as a Bitcoin mining world leader. Even after a ban that prohibited crypto trading and mining in China last year, the Asian country is now the second largest producer of hash rate.

The data was disclosed in the Cambridge Bitcoin Electricity Consumption Index, or CBECI, whose goal is to map mining activity around the world based on the geolocational data reported by mining pools. In December 2021, China accounted for 21.1% of the global hash rate, with that figure dropping to 0% after the ban, as was shown by previous data from Cambridge. Web 3 Wallace had a big week. Robin Hood, one of the biggest stock trading platforms in the U.S., said it plans to develop a new non-custodial mobile wallet for Web3. According to the company's blog, customers will be able to hold the keys for their own crypto and access DAPs to trade and swap crypto with no network feeds, store NFTs, and connect to NFT marketplaces, earn yield using their assets, and access a variety of crypto assets. Robin Hood's wallet will begin testing this summer and has a waitlist for early access.

The company intends to have the product available for all its customers by the end of this year. Coinbase also announced the release of a Web3 wallet. Selected customers will have the ability to access Web3 decentralized applications directly from the Coinbase app. Users will be able to buy and hold NFTs, trade on Dexes, and even use some of the major defy platforms like Compound and Curve to borrow, and swap tokens. Notably, Coinbase users will be able to explore decentralized applications without having to manage a recovery phrase. Multi-party computation technology allows this innovative experience and enables users to have a dedicated on-chain wallet that Coinbase helps keep secured. Crypto adoption ramps up. Cloudflare announced plans to run and fully stake Ethereum

validator nodes, making it the first publicly traded company to make such a move, according to Evan Van Ness. Over the next few months, Cloudflare will launch and fully stake Ethereum validator notes on the Cloudflare Global Network as the community approaches its transition for proof of work to prove of stake with the merge, the company said in its announcement.

It added, This is just the start of our commitment to help the next generation of Web3 networks. Additionally, Spotify will start testing NFTs on its platform, according to a report by Music Ally. Spotify will test NFTs with select users based in the U.S. and NFTs will appear under the artists' songs and albums, but users will need to go to an external marketplace to make their purchase.

Here's another reminder, not your keys, not your coins. In light of Coinbase's announcement that the exchange would retain user assets in the event of a bankruptcy, officials from Joe Biden's administration are pressing Congress to demand cryptocurrency exchanges keep their customers' money separate from corporate funds. Don't think you actually own your tokens when you go into a digital wallet, said SEC Chair Gary Gensler. However, Gus Koldebella, partner at True Ventures, tweeted that the Biden administration's logic gets a lot wrong. Koldebella thinks the problem is how bankruptcy law treats exchange wallets.

For this reason, a legitimate fix that forces cryptocurrency exchanges to keep their customers' money separate from their own corporate funds, is no fix at all. It's not the source of the problem and it doesn't solve the legal issue, he wrote. On a related note, SEC chair Gary Gansler testified before the House Appropriations Subcommittee on Financial Services and General Government this week and asked for a bigger budget to control the crypto space. Two other regulation adjacent stories caught my attention. Reuters reported that finance ministers from G7 countries are calling for more crypto legislation. In light of the recent turmoil in the crypto asset market, the G7 urges the FSB or Financial Stability Board to advance the swift development and implementation of consistent and comprehensive regulation, the ministers wrote in the draft document. TRM Labs, a blockchain analytics company, launched a platform for users to report crypto scams and other illicit activity.

TRM is currently using raw data from the blockchain to create insights to investigate crypto frauds and financial crimes. For more info on TRM Labs, subscribe to my premium bulletin newsletter, where I did an exclusive interview with Airy Redboard CEO. Testing Testing, Ethereum's biggest test is set for June. Ethereum's main public test net, Robston, is set to go through the merge in June. Merging Robsden is a huge testing milestone. toward Ethereum's main net merge, which is projected to happen in a few months. The merge is the most anticipated event of the year in the Ethereum ecosystem. At that time, the Ethereum main net will transition from the proof-of-work consensus mechanism

to proof of stake. Even though there is no exact date set for the merge, Ethereum core developer Preston Van Loon hinted on Twitter that it would happen sometime this year. Time for fun bits. Hmm, nobody has a... any Luna. Apparently, the only ones that lost millions of dollars in the Terra Luna fiasco were retail investors. According to some tweets and press releases, major VC firms and investment funds have confirmed that they had no or very little exposure to Luna. Among these companies are

Pantara Capital, Galaxy Digital, Multi-Coin, Dragonfly, Framework, and On Juno, which Disclosure is a sponsor of my shows. On Wednesday, after saying nothing, For more than 10 days, Galaxy Digital CEO, Mike Novagrath, broke his silence. He said Galaxy has no exposure to algorithmic stable coins. This is coming from a man who is a tattoo of the Luna token on his arm. He said, my tattoo will be a constant reminder that venture investing requires humility. On the latest episode of the chopping block, Dragonflies, Haseeb Qureshi, said he wasn't inclined to believe all these stories. Everyone I talk to says they are okay.

somebody must be lying, he said, laughing. In agreement with Haseeb, Kevin Zhou, the chopping block guest, added, There is no way that's true, but what would be even more harrowing is that if it was true, it would mean that the insiders duffed on retail and got out unscratched. Eventually, a few companies admitted to having exposure to Luna. Delphi Digital said on Thursday, it has a large, unrealized loss. And hashed wallet, a venture fund, sold $3.5 billion, according to Ones. Unchained data. Thanks so much for joining us today to learn more about Tasha, stable coins,

and the Taroluna fallout. Check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yun, Daniel Ness, Mark Murdoch, Shoshank, and CLK transcription. Thanks for listening.