Ethereum has been the subject of much criticism regarding the real long-term value of decentralized finance (DeFi), one of the main use cases. This time, it is Ethereum co-founder Vitalik Buterin who is raising questions.
In a recent tweet, Buterin expressed his desire to see applications that are not only “sustainably useful,” but also adhere to core principles like permissionlessness and decentralization. While he praised some DeFi staples like decentralized exchanges, stablecoins, and the prediction market Polymarket, he criticized what he described as unsustainable products emerging from “the liquidity farming craze of the 2021 era.”
Buterin’s remarks come amid growing frustration within the Ethereum community, where some believe the network’s most influential figure is only “grudgingly tolerating” DeFi while promoting other niche use cases that have yet to reach the same level of product-market fit.
Synthetix founder Kain Warwick expressed his displeasure, saying Buterin had underestimated the importance of DeFi over the past five years. “He keeps trying to make things that aren’t DeFi exist,” Warwick said, adding, “The reality is the market is right, you’re not right.”
Buterin later clarified He also criticized DeFi protocols that generate yields for token holders through borrower interest and transaction fees, rather than through token inflation or what he called “ponzinomics.” He described the current situation as akin to an ouroboros (a snake biting its own tail) where the value of crypto tokens appears to come from the ability to generate yields, which are themselves paid for by cryptocurrency trading activities.
He was also skeptical of over-collateralized lending markets that use ETH as collateral, such as Aave, noting that the value of such markets is ultimately tied to the ETH market itself. “I would like to see a story about where the yield is coming from, or where it’s coming from, that’s rooted in something external,” Buterin noted.
Buterin’s comments have been met with mixed reactions. Some in the Ethereum community were disappointed to learn that Buterin hasn’t been more supportive of DeFi on Ethereum, with the few exceptions he mentioned. On the other hand, some Bitcoin enthusiasts have found common ground with Buterin’s criticisms, particularly regarding his opposition to certain DeFi yield systems.
