Ethereum founder Vitalik Buterin recently stated that USDC yields are not DeFi at all. He believes that stablecoins that embody the spirit of DeFi should be built on over-collateralization and risk diversification mechanisms. Whether backed by native assets like ETH or through a highly diversified real-world asset structure, as long as they can maintain solvency even when a single asset fails, they can substantially improve systemic risk. The longer-term goal is to gradually move away from the US dollar as the unit of account and towards a value system based on multiple assets or cryptocurrencies.
Researcher Yu Zhe'an pointed out that when the market mentions algorithmic stablecoins, it often associates them with the collapse of Terra UST. However, Vitalik's argument is not essentially about technological routes, but rather the issue of "governance sovereignty." When DeFi heavily relies on fiat-backed stablecoins like USDC, it's tantamount to bringing blockchain finance under the influence of sovereign regulation and policy. However, he also acknowledged that in reality, most institutions and users prioritize stability and liquidity, giving fiat-backed stablecoins an overwhelming advantage.
Vitalik agrees: USDC yields are not DeFi.
KOL C-Node argues that unless you have long positions in cryptocurrencies and want to use financial services while maintaining self-custody, there's no reason to use DeFi. This is why and how DeFi has grown, while all other applications are simply blindly imitating it. He adds: Forget about USDC yields; that's not DeFi.
Vitalik agreed with the view that "USDC yields are not DeFi," and further explained that algorithmic stablecoins are the true decentralized finance. He believes that stablecoins that conform to the spirit of DeFi should possess the following characteristics:
Easy mode, ETH-backed crypto asset over-collateralization.
If an algorithmic stablecoin exists that is overcollateralized with native crypto assets such as ETH, even if most of the liquidity in the market comes from the leverage operations of collateralizers, as long as the system can transfer the counterparty risk of the US dollar to the market making mechanism, it is an important risk improvement in itself.
Hard mode: Diversified and decentralized RWA collateral
Even if the underlying assets include real-world assets (RWA), as long as the following conditions are met:
- Over-collateralization
- Highly dispersed
- Even if any single asset fails, the system still has sufficient collateral.
Therefore, the overall risk structure is still better than a single centralized reserve model.
Vitalik: The long-term goal is to stop using the US dollar as the unit of account.
Vitalik further stated that the long-term goal should be to gradually move away from using the US dollar as the unit of account and towards a broader multi-asset index system. This is also a direction advocated by cryptocurrency believers, namely, a currency-based mindset using Bitcoin and Ethereum as the unit of account.
Yu Zhe'an: Vitalik is actually talking about "governance sovereignty".
Researcher Yu Zhe'an points out that when the market mentions algorithmic stablecoins, it often associates them with the collapse of Terra UST, but Vitalik is actually referring to a broader issue of institutional design. A stablecoin system essentially involves three levels:
- Price stabilization mechanism
- Risk management of reserve assets
- Incentive design adopted by users
If this logic is fully written into smart contracts, the advantages are transparency and reduced human intervention. However, the trade-off is a lack of strategic flexibility and the issuer may be passive in terms of market information. Yu Zhe'an believes that Vitalik's so-called "Easy mode" is actually close to the early MakerDAO model: over-collateralizing with native crypto assets and fixing the management logic on-chain. This type is usually classified as "crypto-collateralized stablecoins" in the market, but Vitalik still insists on regarding it as an algorithmic stablecoin.
Yu Zhe'an points out that Vitalik's most noteworthy statement is: "Depositing USDC into Aave does not conform to my definition of DeFi." The core issue behind this is that reserve assets represent a choice of political system. When DeFi uses fiat stablecoins as its base currency, it is equivalent to accepting the governance rights of the issuer and the regulatory system of the sovereign state behind it.
For example, the US Treasury Department's OFAC sanctions list allows stablecoin issuers to freeze addresses through executive orders, creating a policy transmission chain from "sovereign state → stablecoin issuer → blockchain." In contrast, Vitalik's Hard mode, through diversified assets distributed across different jurisdictions, reduces the influence of a single country or institution. Essentially, it aims to block the sovereign's ability to interfere with on-chain finance and governance.
The gap between the ideal and the reality of stablecoins
While Vitalik emphasizes the importance of decentralization and political neutrality, Yu Zhe'an believes the market logic is different. For institutions and most investors, the most important concerns are:
- Price stability
- Risk controllability
- Convenience of fiat currency exchange
Under these conditions, fiat-backed stablecoins will maintain an overwhelming advantage, and algorithmic stablecoins will find it difficult to compete in market share in the short term. The value conflict between profit-driven market users and founders who emphasize political neutrality and long-term sovereign risk will persist.
This article, "USDC Returns Don't Count as DeFi? Vitalik: The Real Goal is to Reduce Sovereign Dependence and Move Towards De-Dollarization," first appeared on ABMedia, a ABMedia .
