|
Getting your Trinity Audio player ready...
|
- Vitalik argues ETH-backed algorithmic stablecoins meaningfully improve risk distribution
- RWA-backed models only work if overcollateralized and highly diversified
- Yield products built on USDC do not qualify as true DeFi, he says
Ethereum co-founder Vitalik Buterin has pushed back against growing skepticism toward algorithmic stablecoins, arguing that ETH-backed designs remain a critical building block for decentralized finance, even if their structure appears circular at first glance.
Responding to criticism on X that DeFi offers little value beyond serving users already long on cryptocurrencies, Buterin said that framing is not wrong — but it misses the point of what DeFi was designed to accomplish.
“This is why and how DeFi got bootstrapped,” Buterin said, adding that many alternative narratives about DeFi’s purpose amount to “cargo cults.”
Why ETH-Collateralized Algorithmic Stablecoins Still Matter
Buterin focused his defense on ETH-backed algorithmic stablecoins built around collateralized debt positions (CDPs). Even if most liquidity ultimately comes from crypto-native participants, he argued that these systems still improve financial risk distribution.
According to Buterin, the key benefit lies in shifting dollar counterparty risk away from users and onto market makers. In practice, this allows users to hold a dollar-pegged asset without relying directly on a centralized issuer to remain solvent or compliant.
Even if 99% of liquidity is provided by CDP holders who are effectively short algorithmic dollars while holding positive dollar exposure elsewhere, Buterin said the structure still offers meaningful protection compared to centralized stablecoins.
Also Read: Coinbase Wins Key Delay in Nevada as Bitcoin Data Signals Institutional Selling Surge
When RWA-Backed Stablecoins Can Work
Buterin did not dismiss real-world asset (RWA)-backed stablecoins outright, but set strict conditions for when they qualify as genuine DeFi improvements.
He said such systems must be overcollateralized and deeply diversified, to the point that the failure of any single backing asset would not break the peg. Without those safeguards, RWA-backed models simply reintroduce traditional financial risks into DeFi.
The priority, he argued, should remain ETH-backed designs first, with highly diversified RWA-backed systems as a secondary option.
Moving Beyond the Dollar—and Rejecting “USDC Yield”
Looking ahead, Buterin said DeFi should eventually move away from using the U.S. dollar as its unit of account, toward more diversified, index-based value references.
He also drew a sharp line against yield products built on centralized stablecoins, dismissing strategies like depositing USDC into lending protocols as fundamentally non-DeFi.
“These gadgets do not qualify,” he said, arguing they preserve the same counterparty risks found in traditional finance.
Buterin’s comments reinforce a clear vision for DeFi: systems that are crypto-native, minimize trust, and redistribute risk rather than masking it. In his view, ETH-collateralized algorithmic stablecoins remain essential—not despite their complexity, but because of the financial trade-offs they enable.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
I’m a crypto enthusiast with a background in finance. I’m fascinated by the potential of crypto to disrupt traditional financial systems. I’m always on the lookout for new and innovative projects in the space. I believe that crypto has the potential to create a more equitable and inclusive financial system.
