"The Three Curses of Decentralized Stablecoins" Vitalik Buterin Reveals the Industry's Unresolved Issues

Ethereum co-founder Vitalik Buterin recently posted a groundbreaking perspective on social media, systematically revealing the three major core issues that have yet to be solved in the decentralized stablecoin space. He pointed out that although the cryptocurrency industry calls for “better decentralized stablecoins,” in practice it still faces deep structural barriers involving financial stability, technical security, and economic incentive mechanisms across multiple dimensions.

In his article, Vitalik Buterin detailed three key bottlenecks: first, over-reliance on the US dollar; second, security vulnerabilities of oracles themselves; and third, the structural contradictions brought about by staking yields. These issues seem independent but actually reflect the fundamental dilemmas in the design of decentralized stablecoins.

Escaping the Shadow of the US Dollar

Vitalik Buterin believes that while pegging to the US dollar may be feasible in the short term, from the perspective of the long-term “national resilience” vision, such dependence will eventually be tested. He specifically mentions that even mild hyperinflation can weaken the effectiveness of dollar-pegged stablecoins.

From another angle, Vitalik Buterin’s core point is: if we extend the timeline to 20 years, how can decentralized stablecoins maintain stability after losing their dollar peg in the face of drastic changes in the global financial environment? This is not just a technical issue but a fundamental question involving financial structural design. He advocates that the future of decentralized stablecoins must find a tracking index superior to the “US dollar price” to truly break free from the fragile dependence on a specific national currency.

The Fragile Defense of Oracles

The second problem Vitalik Buterin highlights hits the Achilles’ heel of decentralized systems—oracle security. Oracles are responsible for inputting real-world data (such as asset prices) into the blockchain for smart contract execution. However, if an attacker with sufficient funds manipulates the oracle, the entire system’s security boundary becomes illusory.

Vitalik Buterin further points out that when oracle design has flaws, protocols are often forced to adopt “economic defenses” rather than “technical defenses.” Practically, this means the system must be designed so that the cost of attack exceeds the total value of the protocol to maintain security. But this approach comes at a heavy price—protocols end up extracting significant value from users, whether through high transaction fees, inflationary token issuance, or concentrating power within governance mechanisms, ultimately eroding user experience and long-term trust.

He further links this technical dilemma to the systemic risks of “financialized governance.” He believes that systems based on token holdings for governance inherently lack asymmetric defensive advantages and cannot cleverly mitigate attack risks through technology or制度. Instead, they can only keep raising attack costs until potential attackers find it “not worth it” to strike.

The Eternal Dilemma of High Yields

The third issue Vitalik Buterin discusses stems from the structural contradictions of staking yields themselves. To attract capital, many decentralized stablecoins have offered astonishing returns. The most famous case is Terra USD (UST), which provided nearly 20% annualized returns through the Anchor Protocol, but ultimately proved unsustainable in the long run.

Last year, Terraform Labs founder Do Kwon was sentenced to 15 years for the $40 billion collapse. This tragic lesson shows that overly inflated yield promises will eventually trigger chain reactions. In response, Vitalik Buterin lists several possible solutions, such as lowering staking yields to “about 0.2%, basically amateur level,” creating new staking categories without penalty risks, or allowing penalizable staked assets to serve as collateral.

However, the gap between ideals and reality is significant. Take the “pure ideal” of collateralized automatic stablecoins that Vitalik Buterin once praised—Reflexer’s RAI, which is backed solely by ETH and not pegged to fiat currency. Ironically, Vitalik Buterin 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,” because holders must sacrifice the staking yields they would have earned from holding ETH to mint RAI—precisely illustrating the dilemma Vitalik Buterin raised.

Centralized Camp Still Holds Absolute Advantage

Although Vitalik Buterin has called for reforming decentralized stablecoins, the current market landscape is still dominated by centralized institutions. The stablecoin market size has surpassed $291 billion, with Tether (USDT) holding a dominant position, accounting for about 56% of the market share.

In contrast, decentralized players like Ethena’s USDe, MakerDAO’s DAI, and its upgraded version Sky Protocol’s USDS hold only about 3% to 4%. Although giants like Binance and Kraken have recently led investments in new projects like Usual, attempting to change the status quo, the advantage of centralized issuers remains hard to challenge.

Meanwhile, regulatory frameworks around stablecoins are gradually taking shape. With the U.S. passing the GENIUS Act last year, a clear legal framework for payment stablecoins has been established. Venture capital giant a16z crypto is actively lobbying the U.S. Treasury to clarify boundaries, hoping to exclude decentralized stablecoins issued via automated smart contracts from strict regulation. This also reflects that beyond the technical challenges Vitalik Buterin pointed out, decentralized stablecoins still face numerous policy and market hurdles.