Buterin criticized modern DeFi as centralized in disguise, arguing that USDC yield farming does not respect fundamental principles.
Ethereum co-founder Vitalik Buterin has questioned the legitimacy of popular USDC yield strategies, arguing that they do not follow the principles of true decentralized finance (DeFi).
His criticism was in response to crypto analyst C-node, who said that most modern DeFi focuses on speculative gains instead of building truly decentralized infrastructure.
Criticism of modern DeFi
C-node has challenged the crypto industry on social media, saying there is little reason to use DeFi unless users hold long cryptocurrency positions and need financial services while maintaining their own custody.
Buterin supported this view, arguing that depositing stablecoins such as USDC into lending protocols like Aave does not count as true DeFi. He rejected such strategies, stating: “inb4 ‘muh USDC yield’ is not DeFi. »
According to him, the underlying asset remains controlled by Circle, meaning the arrangement is fundamentally centralized even though the protocol itself is decentralized.
The Ethereum developer suggested two frameworks for evaluating what should be considered true DeFi. The first, which he described as “easy mode,” focuses on algorithmic stablecoins backed by ETH. In this model, users can transfer counterparty risk to market makers via collateralized debt positions (CDPs), where assets are locked to minting stablecoins.
He explained that even though 99% of liquidity is guaranteed by CDP holders holding negative algorithmic dollars while holding positive dollars elsewhere, the ability to entrust counterparty risk to a market maker remains an important feature.
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The second framework, or “hard mode,” allows support of real-world assets (RWA), but only under strict conditions. Buterin said an algorithmic stablecoin backed by RWAs could still be considered DeFi if it is oversized and diverse enough to survive the failure of a single supporting asset.
Under this structure, the overcollateralization rate must be higher than the maximum share of any individual asset, ensuring that the system remains solvent even if one part collapses. This means that it would act as a buffer that spreads risks instead of concentrating them within centralized entities.
“I think this is the kind of thing we should be aiming for more of,” Buterin said, adding that the long-term goal should be to move away from the dollar as a unit of account and toward a more diversified index.
Response from the crypto community
The remarks were widely supported within the crypto community Another commented that “True DeFi needs real risk innovation, not just USDC parking.”
However, some concerns were also expressed. For example, They added that RWA support requires careful diversification, warning that highly correlated assets or black swan events could still cause a stablecoin to fail.
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