CMC News

Ethereum Founder Warns Stablecoin Design Flaws Persist

#VitalikButerin has identified three structural problems in decentralized #stablecoins that remain unsolved despite years of development. The $ETH co-founder posted his analysis on X Sunday, laying out challenges around price tracking, oracle security, and staking yield competition.

Buterin questioned the long-term viability of pegging to the U.S. dollar. He acknowledged #short-term practicality but argued that systems built for resilience should not depend indefinitely on a single national currency. Over a 20-year period, even moderate inflation could undermine the value of dollar-pegged systems, he wrote. Future designs might track broader purchasing power indexes instead.

Oracle manipulation poses the second major risk. #Blockchain networks cannot access external data directly, requiring oracles to supply price information to smart contracts. If an oracle can be captured with enough capital, protocols become vulnerable to attack.

Weak oracle designs force protocols into economic defense rather than technical solutions, Buterin explained. Systems must ensure the cost of attacking the oracle exceeds the protocol's total value, which requires extracting significant fees or governance control from users.

This dynamic ties to his criticism of financialized governance. #Token-based governance lacks natural defensive advantages, he wrote, forcing projects to make attacks prohibitively expensive through user extraction.

The third issue involves staking yield on $ETH. When stablecoins use staked Ethereum as collateral, holders face a trade-off between the yield earned by validators and returns available to stablecoin users. Buterin called this an inefficient outcome with limited solutions.

He outlined possible approaches without endorsing any of them. One option would reduce staking yields to minimal levels. Another would create a yield-bearing staking category without slashing risk.