Vitalik Buterin Claims Most DeFi Is Fake and Focuses Only on Yields

TLDR

Table of Contents

Buterin criticizes USDC-based lending as failing DeFi’s decentralization goals.
He supports overcollateralized algorithmic stablecoins for real DeFi structure.
Analyst c-node says DeFi must preserve self-custody to stay relevant.
Debate shows divide between ideology-led DeFi and yield-focused protocols.

Vitalik Buterin has questioned the authenticity of many current DeFi practices, stating that real DeFi decentralizes risk and promotes self-custody. Alongside crypto analyst c-node, Buterin explained why overcollateralized algorithmic stablecoins are closer to true decentralized finance than USDC-based strategies that rely on centralized assets.

Real DeFi Must Prioritize Decentralization and Risk Control

Vitalik Buterin and crypto analyst c-node have reignited discussion about the future of decentralized finance. Both criticized DeFi platforms that rely on centralized stablecoins such as USDC to generate yield, arguing that this approach ignores DeFi’s core purpose.

Buterin said real DeFi must allow users to avoid counterparty risk and maintain full control over assets. He believes overcollateralized algorithmic stablecoins meet this requirement better than centralized stablecoins deposited into lending platforms. “The fact that you can punt the counterparty risk to a market maker is still a big feature,” Buterin wrote.

🚨 JUST IN: VITALIK DECLARES ALGORITHMIC STABLECOINS “REAL DEFI”@VitalikButerin said algorithmic stablecoins should be treated as true DeFi.
Buterin said DeFi should move beyond a single USD unit of account.
He argued $ETH-collateralized designs reduce USD counterparty risk.… pic.twitter.com/4OCDi27k8T
— BSCN (@BSCNews) February 9, 2026

C-node also emphasized the importance of self-custody and claimed that most current DeFi activity exists for speculative purposes rather than building decentralized infrastructure. He described some strategies as “cargo cults” that only copy the form of DeFi without supporting its principles.

USDC-Based Strategies Come Under Scrutiny

Buterin specifically called out DeFi protocols that rely on USDC, a centralized stablecoin backed by traditional banking reserves. He stated that these do not support DeFi’s core aims of decentralization and self-custody.

Such strategies involve depositing USDC into lending protocols to earn yield. While they offer some convenience, Buterin said they fall short of enabling users to reduce their reliance on intermediaries. He argued that they imitate traditional finance while using DeFi tools.

C-node also pointed to the growing influence of institutional players in non-Ethereum chains. He said early Ethereum users had stronger beliefs in decentralization, while newer chains are often controlled by venture capital funds and custodial services.

Algorithmic Stablecoins as the Future of Decentralized Finance

Buterin supports overcollateralized algorithmic stablecoins as a step toward real decentralization. These assets are not directly backed by fiat but use smart contracts and excess collateral to maintain value.

He argued that such systems decentralize counterparty risk, which allows users to avoid depending on a central issuer. Even if the system has complex risk layers, it can still be more decentralized than fiat-backed models.

This approach also moves DeFi away from being dollar-centric. Buterin suggested that future systems should use diversified units of account and more robust collateral frameworks. His vision aims to reduce exposure to centralized financial systems.

Community Divided Over What Defines Real DeFi

Responses to Buterin and c-node show a division in the DeFi community. Some users agree that decentralized risk control is the main goal of DeFi. Others believe that using centralized assets like USDC still reduces dependence on banks, even if not fully decentralized.

This discussion reflects larger questions in the crypto space. While some builders aim to maximize returns, others want to build systems that follow DeFi’s original ideals. Ethereum’s DeFi growth, shaped by early adopters focused on self-custody, contrasts with other networks where institutional investors prefer centralized tools.

Buterin’s comments may influence the next stage of DeFi development. As the sector evolves, debates about decentralization, custody, and counterparty risk will likely guide its direction.