Vitalik Buterin has explained how he views the difference between decentralized finance (DeFi) and stablecoin products that focus on yield.
His comments, shared on X, respond to debate about the role of fiat-backed stablecoins in many DeFi lending markets.
He stated that DeFi brings value when it changes how risk is handled. He added that systems built only to earn yield on centralized assets do not shift risk in any meaningful way.
Did you know?
Subscribe – We publish new crypto explainer videos every week!
NEAR Protocol Explained: Beginner’s Guide to NEAR (Animated)
Without naming any project, he pointed to “USDC
$1.00
yield” products as an example. He said they depend on centralized issuers and do not reduce issuer or counterparty risk for users.
Buterin then outlined two models that he believes reflect DeFi’s original intent.
One model uses Ethereum
$2,013.53
as collateral to support an algorithmic stablecoin. The other uses real-world assets, but only with overcollateralization and a structure that spreads risk across many backing assets.
He explained that an ETH-backed model can shift exposure from a single issuer to the broader market. Even if most users mint the stablecoin by borrowing against crypto, the system allows risk to move through market activity instead of sitting with one party.
He also said that a stablecoin backed by real-world assets can still improve risk outcomes if designed with care. If the collateral pool is large enough and diversified well enough, the stablecoin can stay stable even if one asset in the pool fails.
Buterin’s recent comments about Layer-2 networks sparked backlash from Optimism and Arbitrum. What did he say? Read the full story.
