Vitalik Buterin In-Depth Analysis: The Three Major Core Challenges and Future Solutions for Decentralized Stablecoins

Ethereum co-founder Vitalik Buterin recently stated on social media: “We need better decentralized stablecoins.” He pointed out that there are still three fundamental issues to be addressed.

As of January 2026, the total stablecoin market size has exceeded $305 billion, but the share of decentralized stablecoins remains relatively limited. Tether’s USDT market capitalization has reached approximately $18.69 billion, accounting for nearly 70% of the market dominance.

Vitalik’s Core Arguments

Vitalik Buterin’s views directly address the core dilemma in current decentralized stablecoin design. The three questions he raises are not only technical challenges but also philosophical inquiries about the long-term viability of decentralized finance. He clearly states that short-term tracking of the US dollar may be feasible, but in the long run, the vision of national-level economic resilience should include reducing dependence on the US dollar index.

Regarding oracle design, Buterin warns that if oracles can be bought out with large funds, protocols will face a dilemma: either increase attack costs beyond the protocol’s market cap or accept the risk of being attacked.

Analysis of the Three Major Challenges

The three issues identified by Buterin form an interconnected challenge network. The table below shows the core contradictions, inherent challenges, and potential solutions for these problems.

For the staking yield competition problem, Buterin proposed several possible solutions: reduce staking yields to “amateur levels” (about 0.2%); create new staking categories without penalty risks; or make penalizable staking compatible with collateral usage.

US Dollar Dependency and Alternative Index Exploration

The close link between decentralized stablecoins and the US dollar is a double-edged sword. In the short term, the US dollar provides a familiar stability benchmark for the market; but in the long term, this dependence may weaken the independence of decentralized finance. Buterin warns: “What if, over a 20-year horizon, the US dollar experiences hyperinflation? Even moderate inflation could cause problems.” This perspective sparks deep reflection on the long-term store of value for stablecoins.

The industry has begun exploring alternatives to the US dollar index. Some projects are researching indices based on purchasing power or diversified asset baskets, rather than a single fiat currency. This shift could mark the evolution of decentralized stablecoins from “digital dollars” to truly “autonomous value units.”

Oracle Security and Governance Dilemmas

Oracles, as the critical bridge connecting blockchain with real-world data, directly impact the survival of decentralized stablecoins. Buterin points out that many current oracle designs are vulnerable to large capital captures.

When protocols defend against such attacks by raising attack costs, they often require high-value extraction, making the attack cost exceed the protocol’s market cap. This mechanism essentially turns protocol security into a “funds race.” This financialized governance model lacks the asymmetry between attack and defense, ultimately forcing protocols to continuously extract value from users to maintain security. This approach damages user experience and limits the protocol’s long-term growth potential.

The Staking Yield Competition Dilemma

When stablecoins are backed by stakable assets, a fundamental contradiction emerges: the competition between staking yields and stablecoin utility. Users face a choice: stake assets to earn yields or use them as collateral to generate stablecoins.

Currently, many stablecoins offer yields that lag behind direct staking yields by several percentage points, putting them at a disadvantage in long-term competition. Buterin believes that stablecoins unable to offer competitive yields will struggle to attract and retain funds.

The penalty mechanisms for staking further complicate this issue. Staked assets face not only market price volatility risk but also penalties triggered by validator misconduct or prolonged inactivity. For stablecoins relying on staked assets as collateral, this means the underlying assets face dual risks.

Market Status and Innovation Attempts

Despite numerous challenges, innovative projects in the decentralized stablecoin space continue to emerge. Currently, USDC supply has doubled year-over-year, approaching $80 billion, and Ethena’s USDe has grown from about $24 billion to $148 billion.

Notably, some innovative projects like the STBL protocol propose a new paradigm for stablecoins. The protocol allows users to mint stablecoins by collateralizing real-world assets (RWA) such as US Treasuries and private credit, while retaining all income generated by these assets. The “minting equals earning” model offers users an annualized passive income of 4-12%, addressing multiple pain points of traditional stablecoins. This model of sharing real-world asset yields with stablecoin holders may provide new ideas for alleviating staking yield competition issues.

Future Outlook and Innovation Paths

Addressing the three major challenges faced by decentralized stablecoins requires industry-wide innovation at multiple levels. In index design, it may be necessary to develop more globalized and inflation-resistant value benchmarks, rather than merely tracking a single fiat currency.

Oracle design needs to evolve towards more attack-resistant mechanisms, possibly by combining multiple data sources, introducing time delays, or employing cryptographic techniques to enhance security. Meanwhile, governance mechanisms should reduce reliance on purely financial incentives and incorporate non-financial community governance elements.

For the staking yield competition issue, dynamic collateral management could become key. Fixed collateral ratios are often insufficient in the face of significant market volatility, and rebalancing mechanisms and dynamic adjustments are crucial to maintaining stablecoin solvency.

As one of the earliest decentralized stablecoins, DAI currently accounts for about 3% to 4% of the overall market share, similar to Ethena’s USDe and Sky Protocol’s USDS. However, the total share of decentralized options in the entire stablecoin market remains below 10%, with the majority of liquidity still held by centralized issuers like USDT and USDC. Vitalik Buterin’s warnings serve as a mirror, reflecting the technological and philosophical gaps that decentralized finance must overcome on its pursuit of autonomy. As tokenization of real-world assets has already begun and over $300 billion in real-world assets are being tokenized globally, the future of decentralized stablecoins may not lie in completely detaching from traditional finance but in creating a more equitable, transparent, and autonomous new paradigm of value exchange.