Ethereum founder Vitalik Buterin has stressed that real DeFi is not about high returns alone, but about decentralized risk distribution.
At the time of writing, Ethereum was trading at $2,108.70, down 0.03% since it opened early Tuesday in Asian trading.
According to him, many DeFi products today fail to live up to this principle by relying too heavily on centralized stablecoins like USDC.
Despite offering attractive yields, the USDC-based model still retains issuer and third-party risk.
If a stablecoin issuer goes bust, the entire DeFi ecosystem that relies on it is exposed.
Vitalik outlined two types of stablecoins that are more in line with the spirit of DeFi.
The first is the Ether (ETH)-backed algorithmic stablecoin.
In this model, stablecoins are created through crypto collateral, and the risk is distributed to the market, rather than concentrated in a single issuer. While this model is not perfect, it still offers a better level of risk decentralization.
The second is an algorithmic stablecoin backed by real-world assets (RWAs).
However, Vitalik insists that they must be structured conservatively, overcollateralized, and diversified so that the failure of one asset does not bring down the entire system.
While the idea of DeFi is independence from traditional systems, the reality is that lending markets like Aave, Morpho, and Compound are still dominated by USDC with a value of billions of dollars.
This dependency reveals a major weakness: if a centralized stablecoin is disrupted, the entire DeFi ecosystem could be systemically affected.
Vitalik’s rebuke is not a rejection of stablecoins, but a warning. Real DeFi should be able to survive long-term crises including institutional failures, currency instability, and geopolitical pressures without relying on a single central party.
