One of Ethereum’s creators, Vitalik Buterin, argues that Ethereum needs better decentralized stablecoins to truly give people independence from the customary financial system.
“We need better decentralized stablecoins” – Buterin he said in a Sunday post to X in response to a message from Gabriel Shapiro, a lawyer at the investment firm Delphi Labs, which he said Ethereum “triples down power disruption to enable sovereign entities.”
However, Buterin he said for this to happen, decentralized stablecoins must solve three problems.
Three problems plaguing decentralized stablecoins
One problem is that most stablecoins are pegged to the US dollar. CoinGecko data shows that 95% of stablecoins are pegged to USD.
Buterin argued that while tracking the USD may be acceptable in the brief term, the survival of a stablecoin should not rest on the shoulders of a nation-state.
“Well, what if there is hyperinflation, even moderate, in 20 years?” Buterin said, arguing that there should be an index to track “better” than the price of the US dollar.
The second issue is related to oracles, which retrieve real data for blockchains to ensure that stablecoins maintain precise value and appropriate security.
Buterin said the oracle must be mighty enough to resist manipulation attacks without protocols that raise costs for users or artificially inflate token prices.
The third issue, Buterin said, is that investment returns must remain high, without destabilizing the security or discouraging its utilize.
He suggested dramatically reducing the yield on staking to around 0.2% while introducing a recent type of staking that avoids the usual risk of a cut.
He also warned that stablecoin security must address both protocol errors and network attacks, pointing out that no amount of Ether (ETH) can ensure the stability of a stablecoin and that mechanisms must be in place to deal with enormous price swings.
The stablecoin market has skyrocketed to a value of $311.5 billion in 2026, an escalate of approximately 50% compared to the beginning of 2025.
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It is widely used by individuals in emerging countries for cross-border transfers and as a savings tool, while institutions utilize it for large-scale transactions and liquidity management.
Decentralized stablecoins are far behind USDT and USDC
Circle’s Tether (USDT) and USDC (USDC) – both centralized stablecoins – currently account for over 83% of the market and trade volume by a similar margin.
Decentralized stablecoin innovation seemed to have stalled after the TerraClassicUSD (USTC) stablecoin lost ground in May 2022 and removed $60 billion from the Terra ecosystem.
Since then, the Ethena USDe (USDe) stablecoin is arguably the most significant player in the market, while Dai (DAI) is still widely used in DeFi for borrowing, lending, and providing liquidity.
However, neither USDe nor DAI has significantly challenged the dominance of USDT and USDC, which have market capitalizations of $6.3 billion and $4.2 billion, respectively.
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