Vitalik: “Decentralized stablecoins still have key unresolved challenges”

Ethereum (ETH) co-founder Vitalik Buterin pointed to structural limitations of decentralized stablecoins, laying out three core challenges the industry must address.

According to The Block on the 12th (local time), Buterin wrote on X that “we need better decentralized stablecoins,” highlighting issues around setting the reference index, oracle design, and competition over staking yields.

As the first challenge, Buterin cited the limits of a U.S. dollar (USD)-pegged structure. While dollar tracking may work in the short term, he argued that over the long run—considering resilience at the nation-state level—there is a need to move away from reliance on a specific fiat-currency price benchmark. “On a 20-year time horizon, even moderate inflation in the dollar could become a problem,” he said, stressing that “we should design an index more appropriate than the dollar.”

Second is the oracle problem. Buterin said there is a need for a so-called “capture-resistant” oracle design—one that cannot be taken over even by mobilizing sufficient capital. Otherwise, he explained, a protocol would end up requiring capture costs larger than a token’s market capitalization, which could lead to a structure that forces excessive value extraction from users. He added that he has consistently criticized financialized governance for this reason.

Finally, he also cited competition over staking yields. Like the case of TerraUSD, which collapsed after offering high yields of up to 20% per year via Anchor Protocol, excessive returns are not sustainable over the long term. As alternatives, Buterin listed options such as pushing staking yields extremely low or introducing a new staking category without slashing risk, but he drew a line, saying this was not an endorsement of any specific solution but “a listing of the range of possible solutions.”