"Decentralized stablecoins" dilemma unresolved? Vitalik Buterin points out three structural issues that increase costs

Ethereum co-founder Vitalik Buterin recently put forward a significant viewpoint, pointing out that there are three urgent structural issues in the decentralized stablecoin sector that need to be addressed. He emphasized that if the cryptocurrency industry wants to advance the true vision of decentralized finance, breakthroughs must be made on these key issues rather than relying on the convenience of centralized institutions. Vitalik elaborated in detail on these three bottlenecks on social platform X, and explained why existing solutions generally adopt a passive “raising the cost” defensive strategy.

Breaking Free from the Dollar Shackles—Long-term Hidden Risks of Decentralized Stablecoins

The first core issue highlighted by Vitalik Buterin involves the widespread reliance of decentralized stablecoins on the USD peg mechanism. While denominating in USD may be feasible in the short term, from a long-term perspective of “national resilience,” this approach harbors hidden risks.

He further emphasized that even mild hyperinflation can weaken the effectiveness of USD-pegged stablecoins. Vitalik believes that to build a truly sustainable decentralized stablecoin ecosystem, new pathways must be explored to reduce dependence on the USD exchange rate. His provocative question: If we extend the timeline to 20 years, under hyperinflationary pressure, can the USD peg really withstand the test?

This point exposes a fundamental limitation of current stablecoin design—over-reliance on a single fiat reserve makes the entire ecosystem vulnerable to macroeconomic risks.

Oracles as the Biggest Breach—Why “Raising the Block Cost” Is the Only Defense

The second issue involves the structural risks of oracles themselves. Oracles are tasked with transmitting real-world data (such as asset prices) to the blockchain for smart contract judgment and execution. However, once an oracle is manipulated by a “well-funded attacker,” the entire system’s defenses become illusory.

Vitalik pointed out that when oracle design is weak, protocols are often forced to adopt an “economic defense rather than a technical one.” This means the system must be carefully designed so that attacking the oracle costs far more than the total value of the protocol, thus barely maintaining a security margin. This embodies the “raising the block cost” logic.

But Buterin candidly states that such defensive strategies often come with heavy costs. To raise attack costs, protocols are often forced to extract large amounts of value from users through various means—including high transaction fees, issuing inflationary tokens, or concentrating power within governance mechanisms—all of which ultimately erode user experience and long-term trust.

He links this structural problem to his long-standing critique of “financialized governance.” Vitalik believes that systems primarily governed by token holdings inherently lack asymmetric defensive advantages; they cannot cleverly mitigate attack risks through technical or institutional means, and are forced to adopt a passive “raising the cost so attacks become too expensive to justify” strategy.

The Temptation Trap of Staking Yields—How to Design Sustainable Mechanisms

The third issue stems from the structural contradictions of staking yields themselves. To attract capital inflows, many decentralized stablecoins have offered extremely high yields. The most notorious case is Terra USD (UST), which provided nearly 20% annualized returns via the Anchor Protocol, ultimately leading to a staggering $40 billion collapse. Terraform Labs founder Do Kwon was sentenced to 15 years in prison.

Regarding staking yields, Vitalik Buterin listed possible solutions, such as lowering the reward rate to “around 0.2%, basically amateur level,” creating new staking categories without penalty risks, or allowing penalizable staked assets to also serve as collateral.

However, Vitalik admits that these challenges are very difficult to overcome in practice. He highly praised Reflexer’s RAI as “the pure ideal of collateralized autonomous stablecoins”—backed by ETH and not pegged to fiat currency. Ironically, Vitalik shorted RAI for 7 months and made a profit of $92,000. Reflexer co-founder Ameen Soleimani later admitted: “Using only ETH as collateral was a mistake.” The reason is that holders, in order to mint RAI, are forced to sacrifice the staking yields they would have earned from holding ETH—this directly validates the third major challenge Vitalik raised.

Centralized Stablecoins Still Dominate—Dilemma for Decentralized Solutions

Despite Vitalik Buterin’s active calls for reform, the current stablecoin market remains firmly controlled by centralized institutions. Statistics show that the USD stablecoin market size has surpassed $291 billion, with Tether (USDT) maintaining the leading position, controlling about 56% of the market share.

In contrast, decentralized projects are on the periphery. Projects like Ethena’s USDe, MakerDAO’s DAI, and its upgraded version Sky Protocol’s USDS hold only about 3% to 4% market share. Although industry giants like Binance and Kraken recently invested in new projects like Usual, hoping to break the deadlock, the competitive advantage of centralized issuers remains difficult to shake.

Meanwhile, regulatory frameworks around stablecoins are gradually becoming clearer. With the U.S. passing the GENIUS Act last year, there is now a clear regulatory direction for payment stablecoins. Venture capital giant a16z crypto is actively lobbying the Treasury to seek regulatory exemptions for decentralized stablecoins issued via automated smart contracts, aiming to exclude them from strict legislative frameworks.

For decentralized stablecoins to break through the impasse, they need not only to overcome technical challenges such as oracle risks and staking mechanism design but also to find breakthroughs in market recognition and regulatory environments. The “raising the block cost” defensive dilemma highlighted by Vitalik reflects the fundamental challenges faced by decentralized finance today.