Vitalik Buterin said much of today’s DeFi activity fails its core purpose, arguing that true decentralised finance must reduce counterparty risk rather than simply optimise yield.
The comments came during a public exchange with crypto analyst c-node, who criticised popular DeFi strategies such as USDC-based lending as superficial and inconsistent with self-custody principles.
“Even if 99% of the liquidity is backed by CDP holders who hold negative algo-dollars and separately positive dollars elsewhere, the fact that you have the ability to punt the counterparty risk to a market maker is still a big feature,”
Buterin wrote.
Both argued that depositing centralised stablecoins into lending protocols does not meet the standard of genuine DeFi, as it relies on custodial risk and fiat-backed assets.
Buterin instead pointed to overcollateralised algorithmic stablecoins as a more authentic expression of DeFi, because they decentralise risk and reduce reliance on traditional financial intermediaries.
The debate also highlighted a broader divide between Ethereum’s early, ideology-driven DeFi culture and newer blockchain ecosystems dominated by venture-backed capital and institutional custodians.