Vitalik Buterin has questioned the legitimacy of USDC yield strategies, arguing they don’t align with true DeFi. He responded to analyst C-node, who said most modern DeFi focuses on speculative gains rather than building genuinely decentralized infrastructure. Buterin argued that depositing stablecoins such as USDC into lending protocols like Aave does not count as true DeFi. He dismissed such strategies, stating, “inb4 ‘muh USDC yield,’ that’s not DeFi,” noting the underlying asset remains controlled by Circle.
The Ethereum founder proposed two frameworks for evaluating what should qualify as real DeFi. The first, described as the “easy mode,” centers on ETH-backed algorithmic stablecoins. In this model, users can shift counterparty risk to market makers through collateralized debt positions, where assets are locked to mint stablecoins. He explained that even if 99% of the liquidity is backed by CDP holders who hold negative algorithmic dollars while holding positive ones elsewhere, the ability to offload counterparty risk to a market maker remains an important feature.
The second, or “hard mode,” framework allows for real-world asset backing, but only under strict conditions. Buterin said an algorithmic stablecoin backed by RWAs could still qualify as DeFi if it is sufficiently overcollateralized and diversified to survive the failure of any single backing asset. Under this structure, the overcollateralization ratio must be more than the maximum share of any individual asset, ensuring the system remains solvent even if one part collapses. “I feel like that sort of thing is what we should be aiming more towards,” Buterin said, adding that the long-term goal should be moving away from the dollar as the unit of account toward a more diversified index.
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