It isn’t a good idea to fully back a stablecoin with a single fiat currency, because if that nation-state fails, so will the stablecoin, argues Ethereum co-founder Vitalik Buterin.
One of the inventors of Ethereum, Vitalik Buterin, argues that Ethereum needs better decentralized stablecoins to truly give people independence from the traditional financial system.
“We need better decentralized stablecoins,” Buterin said in a post to X on Sunday, in response to Gabriel Shapiro, a lawyer at crypto investment firm Delphi Labs, who said Ethereum is “tripling down on disrupting power to enable sovereign individuals.”
However, Buterin said for this to happen, decentralized stablecoins need to address three problems.
One of the problems is that most stablecoins are pegged to the US dollar. CoinGecko data shows 95% of stablecoins are pegged to the USD.
Buterin argued that while tracking the USD may be acceptable in the short-term, a stablecoin’s survivability shouldn’t rest on the shoulders of a nation-state.
“On a 20 year timeline, well, what if it hyperinflates, even moderately?,” said Buterin, arguing that there should be an index to track that’s “better” than the price of the US dollar.
The second issue is related to oracles, which fetch real-world data for blockchains to ensure stablecoins maintain accurate value and proper collateralization.
Buterin said that an oracle needs to be strong enough to resist manipulation attacks without protocols raising costs for users or artificially inflating token prices.
The third issue, according to Buterin, is that staking returns need to remain high without destabilizing collateral or discouraging use.
He suggested sharply reducing staking yields to around 0.2% while introducing a new type of staking that avoids the usual slashing risks.
He also warned that stablecoin security must account for both protocol errors and network attacks, pointing out that no amount of Ether (ETH) can ensure a stablecoin’s stability and that mechanisms must be in place to navigate large price swings.
The stablecoin market has boomed into a $311.5 billion market in 2026, up around 50% from the start of 2025.
Related: ETH-BTC ratio bottomed in April, mirrors 2019 cycle: Analyst
It is widely used by individuals in emerging countries for cross-border transfers and as a savings vehicle, while institutions use it for large-scale transactions and liquidity management.
Tether (USDT) and Circle’s USDC (USDC) — both centralized stablecoins — currently make up over 83% of the market and lead trading volumes by a similar margin.
Decentralized stablecoin innovation appeared to stall after the TerraClassicUSD (USTC) stablecoin lost its peg in May 2022 and wiped $60 billion from the Terra ecosystem.
The Ethena USDe (USDe) stablecoin has arguably been the industry’s most notable entrant since then, while Dai (DAI) is still widely used in DeFi for borrowing, lending, and liquidity provision.
However, neither USDe nor DAI has meaningfully challenged USDT and USDC’s dominance, with market caps of $6.3 billion and $4.2 billion, respectively.
