Crypto: Vitalik Draws Line Between ‘real Defi’ And Centralized Yield...

The Ethereum co-founder outlined alternative stablecoin models that he says better align with DeFi’s original promise of risk decentralization.

Ethereum co-founder Vitalik Buterin drew a clear boundary around what he considers “real” decentralized finance (DeFi), pushing back against yield-driven stablecoin strategies that he says fail to meaningfully transform risk.

In a discussion on X, Buterin said that DeFi derives its value from changing how risk is allocated and managed, not simply from generating yield on centralized assets.

Buterin’s comments come amid renewed scrutiny over DeFi’s dominant use cases, particularly in lending markets built around fiat-backed stablecoins like USDC (USDC).

While he did not name specific protocols, Buterin took aim at what he described as “USDC yield” products, saying they depend heavily on centralized issuers while offering little reduction in issuer or counterparty risk.

Buterin outlined two paths that he considers to be more aligned with DeFi’s original ethos: an Ether (ETH)-backed algorithmic stablecoin and a real-world asset (RWA) backed algorithmic stablecoin that is overcollateralized.

In an ETH-backed algorithmic stablecoin, he said that even if most of a stablecoin’s liquidity comes from users who mint the token by borrowing against crypto collateral, the key innovation is that risk can be shifted to markets rather than a single issuer.

“The fact that you have the ability to punt the counterparty risk on the dollars to a market maker is still a big feature,” he said.

Buterin said that stablecoins backed by RWAs could still improve risk outcomes if they are conservatively structured.

He said that if such a stablecoin is sufficiently overcollateralized and diversified so that the failure of a single backing asset would not break the peg, the risk faced by holders would still be meaningfully reduced.

Source: CoinTelegraph