Vitalik Buterin, co-founder of Ethereum (ETH), set out his views on the true definition of decentralised finance and its direction, stressing the importance of algorithmic stablecoins.

CoinPost, a blockchain outlet, reported on Feb. 9 that Buterin recently used social media platform X, formerly Twitter, to rebut a view in parts of the industry that defines DeFi simply as a tool to maintain long positions in crypto assets. He cited algorithmic stablecoins as a key element for realising DeFi in the true sense and set out two specific conditions.

First, Buterin said that for an Ethereum-collateralised algorithmic stablecoin, the key is a design that can effectively transfer counterparty risk against the dollar to market makers. That means the system should have the ability to respond flexibly to external risks beyond simply holding assets.

He added that even RWA-based stablecoins have value as DeFi only if they are heavily collateralised and thoroughly decentralised. He said a robust risk-management structure is needed, including limiting the share of individual assets, so that the failure of a single asset does not lead to collateral shortfalls across the whole system.

Buterin drew a line by saying deposit services using the widely used centralised stablecoin USDC do not fall under real DeFi. Pointing to the current reality that the DeFi ecosystem depends excessively on fiat-collateralised stablecoins, he shared a vision of moving in the long term away from a dollar-based system toward more generalised and diverse indexes.

He pointed in particular to stablecoin collateral losing competitiveness in expected returns as Ethereum staking becomes mainstream. To address this, he suggested innovative approaches such as creating a new staking category with reduced slashing risk or fundamentally redesigning participation incentives.

Industry experts see Buterin's comments as reaffirming the need for pure decentralised finance in which the entire process, from issuance to management, is conducted on-chain. They expect his definition to have a tangible impact on future DeFi protocol design standards and regulators' evaluation criteria.

Buterin concluded by stressing the need to increase transparency in system design so that users and investors can clearly recognise risks. The discussion is being assessed as a strategic milestone to improve today's DeFi structure that relies on centralised elements, while pursuing both genuine decentralisation and system stability.

> inb4 "muh USDC yield", that's not DeFi Would algorithmic stablecoins fall under this? IMO no (ie. algorithmic stablecoins are genuine defi) Easy mode answer: if we had a good ETH-backed algorithmic stablecoin, then *even if* 99% of the liquidity is backed by CDP holders who…