- Buterin said that the current model for decentralized stablecoins is not sustainable in the long term.
- Three structural problems must be addressed for stablecoins to decouple from nation-states.
- The Genius Act left out decentralized Stablecoins in the U.S. but they are still not banned.
Ethereum cofounder Vitalik Buterin has stated that the crypto industry needs better decentralized stablecoins. According to Buterin in an X post, decentralized stablecoins – such as Dai (DAI), and Djed (DJED) – are not ideal after years of development.
Why Decentralized Stablecoins Are Still Not Ideal
Buterin laid out three points that decentralized stablecoins need to achieve in order to ensure their long term sustainability, especially free from global inflationary monetary policies.
The Indexing Problem
According to Buterin, decentralized stablecoins must develop out of the conventional monetary system. Furthermore, Buterin noted that the majority of the stablecoins track the U.S. dollar, thus are prone to monetary issues, such as inflation, in the long run.
“Tracking USD is fine short term, but imo part of the vision of nation state resilience should be independence even from that price ticker. On a 20-year timeline, well, what if it hyperinflates, even moderately?” Buterin noted.
As such, Buterin urged the developers of decentralized stablecoins to build on more resilient indexes. He pointed to the global commodity index, energy, and a basket of goods as a better purchasing power in the long term.
The Oracle Design Problem
Buterin stated that the current decentralized oracle designs are still not ideal due to governance attacks. He noted that financialized governance increases the attack vector on decentralized stablecoins, especially in cases of coordinated capital.
As such, Buterin stated that decentralized stablecoins still need DAO governance to counter current oracle design issues.
The Staking Yield Conflict
Buterin threw a spotlight on the conflict between staking yield and usability of collateral. This conflict arises due to the fact that decentralized stablecoins rely on volatile assets in collateralized debt positions (CDP).
For instance, a decentralized stablecoin that relies on Ethereum (ETH) for collateral is prone to slashing risks. Furthermore, the collateral can be liquidated if the validator behaves against the contract, thus potentially destabilizing the decentralized stablecoin.
As such, Buterin urged developers of decentralized stablecoins to reduce staking yields to unattractive levels such as 0.2% APY.
Bigger Picture
The decentralized stablecoins sector has been under siege since the collapse of the Terra Luna UST project. With over $34 billion wiped out during the Terra Luna UST, the United States has championed the development of fiat-backed stablecoins.
The enactment of the Genius Act in 2025 has since catalyzed the stablecoins growth to hover about $316 billion at press time. On the other hand, algorithmic and decentralized stablecoins have not grown in tandem.
For instance, the market cap for the DAI stablecoin has stagnated at around $5.3 billion since August 2023. Notably, the DA stablecoin experienced an explosive growth during the 2021 crypto bull market, whereby it jumped from a market cap of $87 million to over $10 billion in 2022.
Related: Coinbase Withdraws Support From Clarity Act Over Stablecoin Rewards Controversy
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
