Vitalik Buterin: "Algorithmic stablecoins are ‘true DeFi’"

Ethereum (ETH) co-founder Vitalik Buterin said algorithmic stablecoins should be viewed as a form of “true DeFi (DeFi).”

On the 8th (local time), Buterin wrote on X: “A well-designed, Ethereum-collateralized algorithmic stablecoin has an important structural advantage in that it can transfer USD-based counterparty risk to market makers (MM), even if most of the liquidity comes from CDP (collateralized debt position) holders.”

Buterin also said a real-world asset (RWA)-backed stablecoin model is feasible. However, he added that an overcollateralized structure and a high degree of asset diversification must be prerequisites to reduce single-asset risk, and that if these conditions are met, the risk profile for holders can materially improve.

He presented an Ethereum-collateralized algorithmic model as the top priority in stablecoin design. As a next step, he said a diversified RWA-collateral model could follow. Over the longer term, he also argued the system should move away from relying on the dollar as a single unit of account and toward a more universal, decentralized, index-based value framework.

He also drew a line, saying that the current approach of depositing USDC into DeFi protocols does not fall into this category of “true DeFi stablecoins.”