Vitalik Buterin, one of the founding names of the Ethereum world, made harsh criticisms, stating that some applications called “decentralized finance” (DeFi) in the cryptocurrency market are essentially based on centralized structures. Buterin argued that return strategies based on assets controlled by central authorities, especially USDC, do not reflect the true spirit of DeFi. This discussion, which started by supporting the criticism of an analyst on social media, revealed a new vision on what foundations digital finance should be based on in the future.
The Real DeFi and Centralized Asset Impasse
Questioning the current order in the crypto world, Buterin described users’ ability to invest their stablecoins in protocols such as Aave as “an unreal financial illusion.” According to the famous software developer, if there is a central institution like Circle behind an asset, that asset has an inherently centralized structure, regardless of the protocol it is traded on. This perspective exposes investors to the fact that many strategies that they see as safe havens are actually a copy of traditional finance.
In the “easy mode” solution offered by Buterin, the use of Ethereum-based algorithmic stablecoins stands out. In this system, which is carried out through collateralized debt positions (CDP), market makers take on the counterparty risk, while users can carry out their financial transactions without needing the approval of central authorities. In this model, the security of the system is entrusted to the durability of mathematical codes and the Ethereum network, not to the mercy of companies.
Buterin, who is concerned about decentralization becoming just a marketing term, emphasizes that the industry should build a durable infrastructure instead of speculative profits. Investors’ focus only on price movements causes the ecosystem to deviate from its main goal, which is “uncensorable and independent finance.” This release, which had a great impact in the crypto community, pushed industry stakeholders to question how “free” the tools they use are.
Algorithmic Systems and Risk Management
The second framework, which Buterin describes as “hard mode,” involves incorporating real-world assets (RWAs) into the system. However, a very strict condition is stipulated here: Diversification and over-collateralization. If a stablecoin is to be backed by real-world assets, the collapse of a single asset should not bring down the entire system. According to Buterin, the collateral rate must be higher than the share of any asset in the system so that the protocol can survive in the event of a possible bankruptcy.
In the community, there are those who support these proposals as well as those who are cautious. Some analysts, recalling the Terra/LUNA disaster of the past, argue that there is always a risk of algorithmic models “breaking the parity”. Critics agree that RWA-based models, no matter how diversified, may not provide the expected protection during global economic crises or highly correlated market crashes.
Buterin, who argues that the dollar should be removed from being a unit of account in his long-term vision, dreams of systems based on a broader asset index. This approach aims to make cryptocurrencies not just a digital shadow of the dollar but a measure of value in their own right. As discussions continue, the Ethereum community now seems to agree that risk innovation should be focused on systemic resilience, not just returns.
