Vitalik Buterin Says Ethereum Needs Stronger Decentralized Stablecoins

TLDR

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Over 95% of stablecoins are pegged to the US dollar, says CoinGecko data.
Buterin proposes a staking yield as low as 0.2% to protect collateral.
USDT and USDC currently hold over 83% of the $311.5B stablecoin market.
Buterin says no amount of Ether can guarantee stablecoin security alone.

Ethereum co-founder Vitalik Buterin says the Ethereum ecosystem must develop stronger decentralized stablecoins to reduce reliance on traditional financial systems. He addressed this in a response on social media, adding that the current model exposes users to risks linked to centralized currencies and systems.

Buterin was responding to Gabriel Shapiro, general counsel at Delphi Labs, who described Ethereum as a tool for enabling individual financial sovereignty. Buterin agreed but noted that Ethereum cannot achieve this vision without addressing key flaws in existing decentralized stablecoin systems.

Concerns Over US Dollar Peg and Future Viability

Most stablecoins remain pegged to the US dollar. Buterin pointed out that this link may appear secure in the short term, but it could pose problems over longer periods.

According to CoinGecko, about 95% of all stablecoins are linked to the USD. Buterin questioned whether such dependence is wise, especially over a 20-year period. He asked, “What if it hyperinflates, even moderately?” He added that developers should consider building stablecoins that track broader or more resilient indexes, instead of relying on a single fiat currency.

He warned that if the US dollar weakens or collapses, then stablecoins pegged to it could face the same outcome. In that case, the core idea of decentralization could be undermined by dependence on one national currency.

Staking Yield Reforms and Oracle Stability Needed

Buterin also addressed the challenge of maintaining staking returns without creating risks for stablecoin stability. High yields often attract users, but they may result in unstable or unsustainable collateral.

He proposed reducing staking yields sharply to around 0.2%. He added that the network needs new staking methods that avoid the typical penalties or slashing risks that discourage participation.

Additionally, he called for more reliable oracles, which bring external data into the blockchain. Oracles must prevent price manipulation while keeping user costs low. Poorly designed oracles, he warned, can allow attackers to mislead stablecoin systems, which would endanger their value and trustworthiness.

Security Beyond Ether and the Current Market Landscape

Buterin cautioned that Ether (ETH) alone cannot ensure a stablecoin’s value. Stablecoin designs must include systems to handle price volatility and network failures.

He stressed that stablecoins must be able to survive both protocol failures and external attacks. Without such protections, users and developers face major risks, especially during periods of market stress.

The current stablecoin market has grown to $311.5 billion in 2026. However, centralized players like Tether’s USDT and Circle’s USDC control over 83% of that market. Their dominance is reinforced by high liquidity and trading volumes.

Decentralized Alternatives Lag Behind Centralized Competitors

Decentralized stablecoins have not yet offered a real alternative to USDT and USDC. Dai (DAI), developed by MakerDAO, remains widely used in DeFi, but it has not scaled to match centralized competitors.

Ethena’s USDe is one of the latest decentralized options. Still, neither USDe nor DAI has made large enough gains in market share. The collapse of TerraClassicUSD (USTC) in 2022, which caused losses of around $60 billion, also set back industry confidence in decentralized stablecoins.

Buterin’s statements serve as a reminder that more durable solutions are needed if Ethereum aims to build a system truly independent of centralized finance.