Vitalik wants better decentralized stablecoins on Ethereum
Vitalik Buterin, one of Ethereum's creators, argues that Ethereum needs better decentralized stablecoins to truly free people from the traditional financial system.
“We need better decentralized stablecoins,” Buterin said in a post on Sunday X, in response to Gabriel Shapiro, a lawyer at the crypto investment firm Delphi Labs, who said Ethereum “is tripling the disruption of the power to enable sovereign individuals.”
However, Buterin, for this to happen, decentralized stablecoins must solve three problems.
Three problems hindering decentralized stablecoins
One of the problems is that most stablecoins are pegged to the US dollar. CoinGecko data shows that 95% of stablecoins are pegged to the USD.
Buterin argues that tracking the US dollar may be acceptable in the short term, and that the existence of a stable currency should not rest on the shoulders of nation-states.
“What if, over a 20-year timeline, well, it's increased somewhat exponentially?
The second issue has to do with oracles, which provide real-world data for the blockchain to maintain stable coin's correct value and correct binding.
Protocols need to be strong enough to withstand phishing attacks without increasing costs for users or artificially increasing token prices, Buterin said.
A third issue, according to Buterin, is that stock returns must be high without compromising safety or leverage.
He proposed to cut the stock yield significantly to around 0.2% while introducing a new share class that avoids the usual drawdown risks.
He also warned that stablecoin security requires accounting for both protocol errors and network attacks, that no amount of Ether (ETH) can guarantee a stablecoin, and that there must be mechanisms to navigate large price swings.
The stablecoin market will grow to a $311.5 billion market by 2026, up nearly 50% from the start of 2025.
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In developing countries, individuals use it widely for cross-border transfers and as a savings vehicle, while institutions use it for large transactions and liquidity management.
Decentralized stablecoin is far behind USDT, USDC.
Tether (USDT) and Circle's USDC (USDC) – both centralized stablecoins – currently hold more than 83% of the market share and lead trading volumes by the same margin.
Decentralized stablecoin creation halted in May 2022 after the TerraClassicUSD (USTC) stablecoin lost its peg and wiped $60 billion from the Terra ecosystem.
The Athena USDe (USDe) stablecoin has been arguably the most popular coin in the industry since then, while Dai (DAI) is still widely used in DeFi for lending, borrowing and liquidity.
However, neither USDe nor DAI actually challenged the dominance of USDT and USDC, with a market value of $6.3 billion and $4.2 billion, respectively.
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