Vitalik Buterin: USD Pegs, Capturable Oracles, and Staking Yield Are Killing True Decentralized Stablecoins

Decentralized stablecoins still carry deep structural weaknesses, according to Ethereum co-founder Vitalik Buterin. He said these flaws could make them a long-term risk . Buterin said current designs rely too heavily on the U.S. dollar and lack resilience against major macroeconomic shocks.

Buterin Flags Core Stablecoins Design Risks

In an X post, Buterin claimed Stablecoins space requires fundamental innovation and not quick fixes. Tracking the U.S. dollar has served his purposes so far, but the ideal future should be independent from any single fiat benchmark. He warned that dollar debasement over the next several decades could become a significant vulnerability for stablecoin systems.

Buterin also highlighted the oracle design as a significant risk. He added that decentralized models need to be capture resistant to large pools of capital. If an oracle or mechanism can be bribed or otherwise manipulated, then a protocol’s soundness relies on incentives that could against users’ interests.

He outlined with there being capture risk, Stablecoins protocols will attempt to increase the cost of attack by maximizing value extraction. That can mean higher fees, hefty token incentives or governance structures that concentrate power.

Buterin criticized financialized governance approaches, stating they lack defensive asymmetry and require large economic penalties to remain credible. He described that structure as inefficient and hostile to users.

Yield based stablecoins were another concern. Staking based designs introduce trade-offs, Buterin explained, that incentivize weak outcomes for users, unless models are structurally adjusted. He said such designs can leave users with yields that are less than optimal.

Stablecoins Penalty Risks Rise as US Crypto Bill Nears Vote

At the same time, Buterin emphasized that the design of a stablecoin also should aim at reducing risk and penalties for inaction. Funds that are meant to be available in the face of severe drawdowns shouldn’t have tough conditions imposed reducing their availability when there is a big spike in volatility, he said.

The remarks come as U.S. lawmakers are preparing to advance crypto regulation. A closely watched crypto market structure bill is expected to be discussed this week. As CoinGape reported ealier, the Senate Banking Committee will hold a Vote on Clarity Act on Thursday.

If enacted, the bill could introduce clearer regulatory frameworks for digital assets. It may also influence institutional participation in Stablecoins and set new compliance standards for the sector.

However, Ethereum (ETH) is changing hands at $3,104 as of writing, losing 0.39% in the past 24 hours. Ethereum continues to remain in a consolidation phase, according to analyst Ted. As long as ETH remains above the $3,000 support zone, it could rise towards the $3,500 and $3,600 levels in the near term.