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digital daily: Political Tail Risk

Political Tail Risk: It starts with frustration, gradually simmering beneath the surface. Within rich countries, economic outcomes have been increasingly uneven. One percent of the US population accounts for 32% of US net worth versus 3% net worth for the bottom 50%, a widening disparity over time. Policy responses, such as student debt forgiveness, often inadvertently compound the problem. Frustration spills across borders, as voters demand the needs of their country be put first. Demonstrations in Czechia supported policy neutrality to ease the energy crisis with Russia, tensions in Kosovo remind us of the fragility of peace agreements, the Turkish President threatened a strike against Greece without notice, and lines are being drawn around territorial issues in Taiwan. Ahead of China’s Party Congress, US midterm elections, and the ongoing war in Europe, the long road to world peace is now on a cliff’s edge. Threats are no longer coded messages for only diplomats to decipher. China’s embassy warned that the United States “undermines China's sovereignty and security interests by selling arms to the Taiwan region.” Is war the natural reset button, the mechanism that prioritizes shared sacrifice, a worse tomorrow for a better future? That such questions deserve attention is telling of geopolitical uncertainties. Digital asset technologies are built to survive, having contemplated severe outcomes. Ethereum’s post-Merge state, for instance, culls validator nodes that are unresponsive after long periods to preserve the long-term health of the network. But the mindset around investing would shift to survival, not adoption. Digital can certainly play a force for good, bringing transparency to the use of funds in periods where bad operators prefer none. Now is the time to think about political tail risk and the impulse to portfolios. Ask a historian. Read military strategy. Study resource constraints. A cold winter is easier to navigate than a hot war.