Vitalik issues warning: USD stablecoins are not the endgame; decentralization still faces three major challenges to solve

Ethereum co-founder Vitalik Buterin once again shifts focus to the development dilemmas of decentralized stablecoins. He clearly states that if Ethereum is to truly empower individuals to break free from traditional financial systems, it must have a “better decentralized stablecoin system.” Currently, about 95% of stablecoins are pegged to the US dollar, but Vitalik believes this single anchoring approach carries structural risks in the long term. He outlines three core challenges involving the pegging mechanism, oracle design, and staking yield structure—issues that directly impact whether decentralized stablecoins can become genuine financial infrastructure.

Long-term Hidden Dangers of USD Pegging

Why is single anchoring problematic

According to CoinGecko data, approximately 95% of stablecoins are pegged to the US dollar. Vitalik believes that while tracking the dollar may be reasonable in the short term, from a 20-year long-term perspective, this highly centralized design has obvious flaws. He points out that stablecoins should not rely on a single national currency, especially in the context of potential inflation or currency credit fluctuations.

What are his suggestions

Vitalik proposes exploring an “indexing method superior to the US dollar” as a peg. This means the value reference for stablecoins should be more independent, possibly combining a basket of assets or purchasing power indices rather than simply tying to the dollar. This approach aligns with ideas from some emerging projects, but currently, few projects in the market have truly implemented it.

Vulnerability of Oracle Mechanisms

Where is the core risk

Stablecoins depend on oracles to obtain real-world price data to maintain their peg and collateral security. Vitalik emphasizes that oracle systems must have sufficient resistance to manipulation. However, many existing oracle solutions face a dilemma: either they lack security and are vulnerable to attacks, or they require high maintenance costs to ensure security.

Cost trap

If oracles are designed with complex mechanisms to enhance resistance to manipulation, this can increase user costs or inflate token prices, thereby weakening the usability of decentralized stablecoins. This is one reason why many decentralized stablecoins, despite being technically feasible, struggle to compete with centralized products in practical applications.

Paradox in Staking Yield Design

Risks of high yields

Vitalik points out that high yields often undermine the stability of collateral structures and can even trigger systemic risks. High yields attract large inflows of capital, but the actual demand for these funds may be unstable; market volatility can lead to runs.

His reform proposal

Vitalik suggests significantly lowering staking yields to around 0.2% and introducing new staking models to avoid the discouragement of user participation caused by traditional penalty mechanisms. This figure seems low, but his logic is that the value of stablecoins lies in stability itself, not high returns. Overpromising yields only masks underlying risks.

Current Market Situation: Centralization Still Dominates

Data shows that although the stablecoin market has grown to approximately $311.5 billion by 2026, the competitive landscape remains unchanged. USDT and USDC together hold over 83% of the market share, while decentralized stablecoins like Dai and Ethena USDe continue to play roles in DeFi but still lag far behind mainstream centralized products in market cap.

Why is this issue critical

Vitalik’s warning touches on the core dilemma of Ethereum’s long-term financial vision. He emphasizes that the security of stablecoins depends not only on collateral size but also on covering protocol vulnerabilities and network attack risks. Merely increasing ETH collateral does not guarantee stablecoin price stability during extreme market conditions; systemic design must address sharp volatility.

In other words, the problem with decentralized stablecoins is not purely technical but also a matter of design and economics. Solutions require innovative thinking rather than simple engineering optimizations.

Possible future directions

Short-term reality

In the foreseeable future, centralized stablecoins (USDT, USDC) will continue to dominate the market. However, Vitalik’s views serve as a clear signal: the development path of decentralized stablecoins needs adjustment.

Long-term possibilities

If decentralized stablecoins can achieve breakthroughs in the following areas, it could change the landscape:

• Finding reliable non-USD peg schemes to establish more independent value references
• Developing truly manipulation-resistant and cost-effective oracle mechanisms
• Designing more rational staking incentive models to balance security and participation

Summary

Vitalik’s recent remarks do not deny decentralized stablecoins but highlight their structural flaws. While USD pegging is convenient, from a 20-year perspective, it may not be optimal. The issues with oracle design and staking yields are even more complex, involving fundamental economic trade-offs.

The key point is that solving these problems is not just about technology but about whether someone is willing to innovate in design. If decentralized stablecoins cannot make breakthroughs in these three areas, Ethereum’s long-term financial vision will face structural limitations—one reason why centralized stablecoins still hold an absolute market advantage today.