Vitalik Buterin argues that algorithmic stablecoins are the real DeFi. He stated on X that USDC deposit yields do not constitute DeFi, and that algorithmic stablecoins are the true DeFi. From a risk-structure perspective, if high-quality algorithmic stablecoins backed by ETH exist, even if their liquidity largely comes from CDP holders, the key is the ability to transfer counterparty risk on the USD side to market makers.
Even if algorithmic stablecoins are backed by real-world assets, as long as over-collateralization and asset diversification are achieved—ensuring sufficient collateral remains even if any asset fails—it represents a substantial improvement to the risk structure for token holders. Buterin believes the industry should move in this direction and gradually move away from the US dollar as the unit of account, shifting towards a more universal and diversified index-based pricing system. Current transactions involving ‘depositing USDC into Aave for interest’ do not fall into this category.
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