Ethereum co-founder Vitalik Buterin has renewed his critique of the stablecoin landscape, arguing that the ecosystem still lacks decentralized stablecoins capable of delivering long-term financial independence from traditional systems.
“We need better decentralized stablecoins,” Buterin said in a post on X on Sunday, responding to a statement by Delphi Labs lawyer Gabriel Shapiro, who described Ethereum as “tripling down on disrupting power to enable sovereign individuals.”
While Buterin agreed with the broader vision, he said the goal cannot be achieved unless decentralized stablecoins resolve three fundamental structural problems. His comments come as the global stablecoin market continues rapid expansion and centralized issuers consolidate their dominance.
We need better decentralized stablecoins. IMO three problems:
— vitalik.eth (@VitalikButerin) January 11, 2026
1. Ideally figure out an index to track that's better than USD price
2. Oracle design that's decentralized and is not capturable with a large pool of money
3. Solve the problem that staking yield is competition…
Dollar dependence raises long-term risks
Buterin identified the first problem as excessive reliance on the US dollar. According to CoinGecko data cited in the report, 95% of stablecoins are currently pegged to the USD.
“Tracking USD is fine short term, but [in my opinion] part of the vision of nation state resilience should be independence even from that price ticker,” Buterin wrote. “On a 20 year timeline, well, what if it hyperinflates, even moderately?”
He argued that decentralized stablecoins should not base their survival on a single nation-state currency. Instead, he suggested the need for an alternative index that performs better than the dollar over extended time horizons. Buterin framed this issue as a core design limitation rather than a theoretical concern.
Oracle design remains a weak point
The second challenge Buterin raised relates to oracles, which supply blockchains with external price data. These systems play a central role in stablecoin collateralization and peg maintenance.
According to Buterin, oracle designs often face capture risks that force protocols into harmful trade-offs.
“You have to ensure cost of capture > protocol token market cap, which in turn implies protocol value extraction > discount rate, which is quite bad for users,” he wrote.
He described this structure as a “dead end” for decentralized finance. Buterin also linked the issue to governance models that rely on financial incentives rather than structural safeguards.
“This dynamic… is a big part of why I constantly rail against financialized governance btw,” he added, stating that such systems lack defensive asymmetry.
Staking yields complicate stablecoin stability
The third issue centers on staking yields. Buterin warned that high returns on locked assets can destabilize stablecoin systems by encouraging excessive risk. Past failures illustrate this danger.
Decentralized stablecoins previously relied on aggressive yield incentives, most notably TerraUSD, which offered nearly 20% returns through the Anchor Protocol. The model collapsed in May 2022, erasing roughly $40 billion from the Terra ecosystem. Terraform Labs founder Do Kwon received a 15-year prison sentence last month for his role in the collapse.
To address this issue, Buterin proposed several options. These included reducing staking yields to “like 0.2%, basically hobbyist level,” introducing a staking category without slashing risk, or allowing slashable staking to work alongside collateral use. He emphasized that these ideas represent “enumeration of the solution space, not endorsement.”
He also warned that stablecoin security must account for protocol failures and network-level attacks. No amount of Ether, currently priced around $3,120, can guarantee stability without mechanisms that manage sharp price movements.
Decentralized stablecoins lag behind centralized rivals
Despite years of development, decentralized stablecoins remain a small segment of the market. Centralized issuers dominate both supply and trading activity.
Tether’s USDT and Circle’s USDC account for more than 83% of total stablecoin market share. The broader stablecoin sector reached $311.5 billion in 2026, up about 50% from early 2025. Institutions use stablecoins for liquidity management and settlement, while individuals in emerging economies rely on them for savings and cross-border payments.
Among decentralized options, Dai and Ethena’s USDe stand out but remain far behind market leaders. USDe holds a market capitalization of $6.3 billion, while Dai stands at $4.2 billion. Neither has posed a serious challenge to centralized dominance.
Innovation in this segment slowed after the Terra collapse. While Ethena’s USDe emerged as a notable entrant, the sector has not regained momentum comparable to its pre-2022 trajectory.
Past experiments highlight unresolved tensions
The challenges Buterin outlined have proven difficult in practice. Reflexer’s RAI, an ETH-backed stablecoin not pegged to fiat currency, reflected design principles that Buterin once praised as the “pure ideal type of a collateralized automated stablecoin.”
However, Buterin later shorted RAI in a seven-month trade that generated $92,000 in profit. Reflexer co-founder Ameen Soleimani cited the trade as evidence of structural flaws. “ETH-only RAI was a mistake,” Soleimani said, pointing to missed staking yields on underlying collateral.
Regulatory clarity favors centralized models
While decentralized stablecoins struggle with design constraints, centralized issuers benefit from increasing regulatory clarity. In the United States, the GENIUS Act established the first federal framework for payment stablecoins. Venture firm a16z crypto has urged regulators to clarify that autonomous smart contract-issued stablecoins fall outside the law’s scope.
Buterin’s comments followed a post that framed Ethereum as a “contrarian bet” against custodial stablecoins and crypto neobanks. His remarks echoed a New Year message that urged developers to build applications that are “actually decentralized.”
Matvii Diadkov
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