Vitalik Not So Fond of DeFi? Developers Question Contradictory Attitude, Vitalik Reveals DeFi Preferences

"Vitalik Not So Keen on DeFi?" Recently on the Steady Lads Podcast, Kain Warwick, the founder of synthetic asset protocol Synthetix, discussed Ethereum co-founder Vitalik Buterin's stance on DeFi, stating that it was the biggest mistake he made in the past five years, causing doubt among Ethereum ecosystem developers. Vitalik responded to these comments, attempting to explain his preferences.

Community Perspective: Surprised by Vitalik's Lack of Love for DeFi

Coming from Synthetix, MilliΞ @llamaonthebrink expressed that feeling surprised after listening to this podcast is completely understandable. Despite DeFi being a significant part of the Ethereum ecosystem, Vitalik and the Ethereum Foundation have reservations about decentralized finance (DeFi).

Although Vitalik's stance cannot be confirmed, he has expressed concerns about the over-financialization of Ethereum, believing that excessive focus on DeFi may deviate from more transformative applications such as decentralized governance and public goods. From this perspective, his enthusiasm for DeFi as the sole or dominant use case for Ethereum may not be high, especially when many protocols rely on centralization or strong dependencies on trusted entities (such as oracles and multisig).

He questions, "If the vast majority of ETH's value comes from it being used as collateral in DeFi, why would you want to see fewer DeFi protocols being built?"

Calling for a return to Cypherpunk values! Vitalik's vision of blockchain and Ethereum as an ideal societal form, integrating speculation and development.

He also wonders about Vitalik's positive support for USDC despite its centralized risks. He speculates that supporting USDC may be more pragmatic, as the stablecoin provides liquidity and stability when decentralized options are still challenging,.

Is Vitalik's Thinking Contradictory?

MilliΞ from Synthetix stated that praising entities like USDC and hoping for less DeFi is ironic. However, Vitalik's views do not necessarily represent the entire community.

He attempts to empathize with Vitalik and suggests that criticizing DeFi for not being decentralized enough makes sense, perhaps reflecting a desire to drive protocols that are more resistant to censorship and rely less on central components, rather than outright opposing the DeFi concept. He also looks forward to Vitalik addressing his questions.

Vitalik: I Want to See Applications That Aren't Just Liquidity Mining

Vitalik stated: "I want to see applications that are (i) sustainably useful, and (ii) don't sacrifice principles like permissionlessness and decentralization."

Vitalik said: "I think DEXs are great, I use them every week. I think decentralized stablecoins like RAI are great. I think Polymarket is great. I think USDC is not as good as RAI, but in practice, we just need to respect it because it's very convenient and many people use it.

It's very useful to me personally for international donations, much more convenient than dealing with banks. We are here working to make the global economy and society more open and free, and people in emerging markets freely trading stablecoins is a real use case, ubiquitous.

USDC on Ethereum is also much better than account-to-account transfers within centralized exchanges, which happen frequently. If lots of people are using USDC, that creates a situation where people are more likely to switch to other, more decentralized stablecoins. The things I 'do not' respect are basically things that derive their attractiveness from temporary sources, such as.

I am not excited about the 2021 era of liquidity mining hype, because it's clear that it comes fundamentally from tokens being issued temporarily. If people tell me 'you can park your coins here and get nice returns,' my question is always, 'Where do the returns come from? Who are the other side of the trades, who's paying the returns?' In cases where there are concrete answers to those questions, there's good reason to believe it will still be around in 5 years, and then I'm very excited about it."

Concerns About DeFi Interest Rates

Vitalik expressed concerns about the sustainability of the decentralized finance (DeFi) market, especially regarding the source of returns. Vitalik worries that the revenue source of DeFi might be like an "ouroboros" – deriving revenue from cryptocurrency trading itself rather than external value creation.

In particular, even if clear explanations are given, such as USD holders earning an 8% annual interest rate through lending, with these rates being paid by people wanting to trade ETH with 2x leverage, this still illustrates that the existence of the DeFi market relies on the existence of the ETH market. Therefore, although DeFi has great potential, its growth ceiling may be limited and unable to become the key driver for a 10x to 100x adoption explosion in the crypto market.

Vitalik hopes to see a more compelling narrative explaining the sources of these returns and how these returns should be associated with external value. Vitalik mentioned some possible explanations, such as cryptocurrencies having structural efficiency advantages in international currency exchanges, but he hopes to hear more discussions on this.

There Are More Important Things Than Finance

Vitalik added: "We should all agree that funding 'is not enough.' There are many points of concentration and threats in today's world technology:

• Continued political attacks on encrypted messages
• Centralized identity systems and credit scoring
• Errors/backdoors in insecure/proprietary operating systems
• Social media – government censorship on platforms, and platforms' opaque/centralized algorithms
• A few powerful countries gaining more and more power, able to strip people on the other side of the planet from half the internet platforms
• Surveillance of centralized AI, decentralization, and economic dominance risks
• Similar concerns are looming for brain-computer interfaces (BCI)

"Even if you can magic finance into perfect shape, if we get these other things wrong, the world will still be very bad, along all the philosophical axes that got us into cryptocurrency in the first place. Meanwhile, finance is a critical part of any strategy that drives many of these trends. Unless you pay for your VPN in a way that protects privacy, your VPN isn't anonymous, so I much appreciate RAILGUN giving me a way to do this (and excited for 0xbow for working to expand privacy while minimizing the ability for bad actors to benefit from these kinds of protocols, all with no backdoors.

Polymarket is part of finance but not just finance. Farcaster is social but uses financial elements to combat misinformation, I would guess that sustainable monetization strategies for decentralized social will involve decentralized finance. When anyone can build a client, ads are inherently limited, so you have to try other ways, so I think the intersection between decentralized finance and other decentralized technologies will be very important. And 'other decentralized technologies' are an industry that naturally won't get a $100M VC round, so I think it needs high-level explicit support today, although my ideal is that we find a stable feedback loop to develop it."