Ethereum (ETH) co-founder Vitalik Buterin challenged the decentralized finance sector's direction in a recent exchange with crypto analyst c-node, arguing that most current DeFi applications fail to meet basic decentralization standards and serve speculative interests rather than building genuine financial infrastructure.
What Happened: DeFi Debate
The analyst c-node sparked the discussion by asserting that DeFi serves primarily as a tool for cryptocurrency holders seeking financial services while maintaining self-custody. The expert dismissed common yield strategies involving USDC deposits into lending protocols as superficial imitations that lack DeFi's original principles.
C-node argued that non-Ethereum blockchains struggle to replicate Ethereum's DeFi success because early ETH participants prioritized self-custody as an ideological commitment, while newer ecosystems attract venture capital funds relying on institutional custodians.
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Why It Matters: Infrastructure Standards
Buterin responded by establishing criteria for genuine decentralized finance. He defended algorithmic stablecoins, particularly overcollateralized structures that distribute counterparty risk across markets.
"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.
The Ethereum creator criticized USDC-based strategies as insufficient and proposed moving beyond dollar-denominated systems toward diversified units backed by decentralized collateral.
The exchange revealed competing visions for DeFi's purpose. Some participants view it as a tool for capital efficiency without custody surrender, while others see it as foundational infrastructure capable of reshaping global finance through decentralization and distributed risk.
Thread responses highlighted this divide, with some arguing that DeFi with centralized assets still reduces intermediaries and systemic risk. Others supported c-node's position that market forces will favor self-custody protocols over hybrid or fiat-backed systems, particularly as Ethereum's ideologically-driven early adopters contrast with venture-backed investors on other chains prioritizing convenience.
Recently, Buterin declared the original vision for Layer 2 rollups "no longer makes sense".
Buterin cited two factors: L2s progressed "far slower" toward decentralization than expected while Ethereum's base layer scaled independently. The comments represent a significant reversal from the rollup-centric scaling plan he championed since 2021.
Only three major L2s - Arbitrum, OP Mainnet, and Base - reached Stage 1 decentralization by 2025. Most rollups remain at Stage 0 with centralized control mechanisms.
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