Ethereum co-founder Vitalik Buterin has criticized the dominance of USDC in DeFi lending, arguing that the current yield-focused model centered on centralized issuers distorts DeFi’s core promise of risk distribution. In a discussion on X, he stated that the true DeFi should prioritize how risk is allocated and managed, rather than simply extracting profits from centralized assets. He pointed to USDC-based lending markets as evidence that the DeFi ecosystem is being distorted. Buterin did not name specific projects but asserted that ‘USDC yield products’ rely on centralized issuers and fail to adequately reduce counterparty risk.
Instead, he proposed two models aligned with DeFi philosophy: an algorithmic stablecoin backed by ETH and an algorithmic stablecoin backed by over-collateralized real-world assets (RWA). The critique mirrors the current DeFi landscape, where major lending protocols on Ethereum show heavy USDC exposure: total loans stand at about $364 billion, with roughly $41 billion of USDC supply and about $2.77 billion borrowed. Morpho’s top five borrowing markets include three USDC-based venues, led by a market near $510 million. Compound shows USDC deposits around $382 million and borrowings around $281 million, collectively involving about $536 million in collateralized activity.
Buterin emphasizes that the issue is not opposition to stablecoins per se but to a yield-centric architecture that undermines DeFi’s promises of risk diversification and transparency. He has previously urged the Ethereum ecosystem to adopt more resilient, decentralized stablecoins that can withstand macroeconomic shocks and oracle or protocol failures. The remarks add to a broader call for a structural rethink in stablecoins and risk design as DeFi matures. The global DeFi ecosystem is increasingly relying on institutional-grade liquidity, underscoring the need for redesigned stablecoins and risk frameworks.
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