On February 8, 2026, Vitalik Buterin publicly discussed the essence of DeFi on X, directly targeting the mainstream practice of earning interest by depositing USDC into Aave. He clearly stated that this model should not be considered "true DeFi," which quickly sparked controversy within the community. On one hand, he denied the narrative that earning passive income from centralized assets is an innovation in DeFi; on the other hand, he introduced a new main thread: algorithmic accounting assets supported by over-collateralized ETH, gradually moving away from single dollar pricing towards multi-index anchoring. His statement was not just a discussion of technical routes but an attempt to rewrite the fundamental question of "What is DeFi?"

The Line Between USDC Deposits and True DeFi

● Traditional Financial Logic: In Vitalik's view, depositing USDC into Aave to earn interest is structurally closer to the traditional financial model of "deposit-lending-earning interest," merely replacing banks with smart contract front ends. The source of funds remains a centralized liability tool based on the dollar, and the protocol logic revolves around interest rates and leverage, rather than on-chain native assets and permissionless settlement relationships, which fundamentally differs from his vision of "decentralization and permissionlessness" in DeFi.

● Dilution of Trustlessness: Assets like USDC are backed by custodians, freezing blacklist mechanisms, and a high dependence on regulatory approval. If the upstream issuer or regulatory environment changes, on-chain positions may passively become invalid at any time. Vitalik believes that when the risk exposure of DeFi protocols is highly tied to these centralized risks, the so-called "trustlessness" remains largely at the on-chain execution level, while the value layer still requires "trust in a company plus a regulatory system."

● The Reality of "Pseudo-Decentralization": From lending and leveraged trading to stablecoin farming, centralized assets like USDC often occupy core positions in collateral, pricing units, and trading pairs within mainstream DeFi protocols. On the surface, users interact freely with wallets and contracts, but peeling back the layers reveals that the thresholds for liquidation, risk premiums, and yield curves are almost all scripted in dollar assets. This reliance on a single fiat currency system is seen by Vitalik as a deviation from the original intent of DeFi.

ETH-Collateralized Algorithmic Stablecoins: The Difficult Path to Decentralization

● The Basic Idea of Over-Collateralizing ETH: The first path proposed by Vitalik is to over-collateralize ETH to issue an algorithmic asset that is relatively stable in price. This asset does not rely on fiat custodial accounts but maintains anchoring to a target value range through on-chain collateral ratios, liquidation rules, and internal adjustment mechanisms. He did not provide complex algorithmic details, but the core of the route is to keep collateral, liquidation, and governance as decentralized and verifiable as possible within the on-chain environment.

● Risk Differences Between USDC and ETH Collateral: The main risks of USDC collateral are concentrated in issuers and regulation—if custodial assets are seized or accounts frozen, on-chain collateral positions may lose support without users' knowledge; whereas ETH collateral is more exposed to market volatility and on-chain technical risks, with the liquidation process verifiable by anyone and governance rules adjustable by stakeholders. This shift of risk from "black box + administration" to "public + market" is the direction Vitalik insists on.

● Persistence After Failed Cases: From algorithmic accounting assets that have collapsed multiple times to projects that ended in price spirals and loss of confidence, history has proven that maintaining price stability solely through algorithms and expectations is extremely difficult. However, Vitalik does not deny the concept of decentralized collateral itself but attributes the issues to unreasonable incentive designs, excessive leverage, and fragile liquidation mechanisms. In his view, failures indicate that there is significant room for improvement in "how to do it," rather than that "this path is completely unfeasible."

Moving Away from Single Dollar Anchoring: The Ideal and Reality of Multi-Index

● The Motivation to Break Free from Dollar Standard: Vitalik clearly states that we should gradually move away from using the dollar as the primary pricing unit and instead build an accounting system anchored by diversified indices. In his view, measuring all on-chain value with a single sovereign currency will structurally subordinate the crypto economy to the dollar financial system, making it difficult for DeFi to develop a truly independent economic cycle and risk pricing framework.

● Systemic Constraints from Dollar Anchoring: Against the backdrop of high inflation, frequent geopolitical conflicts, and tightening regulatory attitudes towards dollar-denominated assets in multiple countries, converting all DeFi assets, liabilities, and revenue channels into dollars means that if dollar policies or compliance directions change drastically, the entire crypto system will passively bear external shocks. Vitalik attempts to point out that this single-point dependence at the macro and regulatory levels has become a structural risk source that the crypto market cannot avoid.

● Technical and Cognitive Challenges of Implementing Multi-Indices: There is currently a lack of a unified solution for how to construct, calculate, and efficiently trade multi-indices on-chain. Whether it is the selection of component assets, weight adjustment rules, or how to provide sufficient depth and arbitrage channels in the secondary market, there are many technical and mechanism validations needed. At the same time, users need a long mental education process to transition from the intuitive anchor of "1 dollar equals 1" to a basket of asset indices, which will determine whether such assets can gain widespread use rather than just being experimental items within a small circle.

Regulatory Shadows and Macroeconomic Fluctuations: Why Algorithmic Solutions Are Back on the Table

● The Tug-of-War Between Sovereign Currency and Crypto Assets: Recently, the Governor of the South African Reserve Bank publicly warned about the risks that the proliferation of fiat-pegged on-chain assets may bring, emphasizing its impact on the domestic currency system and capital flow regulation. Similar statements have emerged, reminding the market that a tightening game line is forming between sovereign currency issuers and globalized on-chain assets. The larger traditional anchoring solutions grow, the more intense the regulatory response becomes.

● Bitcoin's Volatility Amplifies the Demand for "Stable Value": Meanwhile, Bitcoin's price recently rebounded from $60,000 to over $70,000, and this volatility has once again reinforced the market's demand for "stable value assets"—whether for leverage management, cross-chain settlement, or long-term contract pricing, a relatively stable pricing and collateral unit is needed. This demand not only drives the expansion of fiat-pegged products but also prompts a re-examination of whether there are alternative paths that do not rely on a single sovereign credit.

● Algorithmic Decentralized Solutions Re-enter the Spotlight: In the context of tightening regulations and high market volatility, the decentralized algorithmic route emphasized by Vitalik is being viewed by some developers and capital as a potential "way out." It attempts to provide a composable stable value layer for DeFi without relying on bank accounts or being constrained by a single sovereign currency. Although this direction still faces severe design and compliance uncertainties, its strategic appeal is rising compared to models that are completely parasitic on the fiat system.

From Investment Themes to Narrative Mainlines: What Kind of DeFi Is Capital Betting On

● Institutions Target DeFi Contract Models: Recently, Multicoin Capital included the DeFi contract model as one of the eight key investment themes in its crypto investment report, indicating that institutional funds have not abandoned this track but have shifted from single product yields to deeper protocol structures and value capture models. This means that innovations around how contracts design collateral, liquidation, and governance are seen as an important battleground for the next stage.

● The Intersection and Divergence of Vitalik and Capital Logic: On one hand, capital seeks scalable, chargeable protocol infrastructure; on the other hand, Vitalik is more concerned with decentralization, censorship resistance, and value systems beyond monetary sovereignty. There is an intersection between the algorithmic accounting assets and multi-index topics—both recognize that the current fiat-pegged model has a ceiling; however, there are inevitable tensions in areas such as yield distribution and concentration of governance power, which will directly shape the power structure of future DeFi.

● If a New Anchor Takes Hold, DeFi Structure May Be Rearranged: Once algorithmic assets collateralized by ETH and multi-index accounting units gradually take hold, the sources of yield, collateral combinations, and mainstream trading pairs in DeFi may shift accordingly. From a lending and trading pair structure based on "USDC/USDT," it may transition to a new system built around on-chain native assets and index assets, forcing a rewrite of interest curves, risk premiums, and even project valuation paradigms. This is also one of the reasons why capital is beginning to lay out related protocols in advance.

The Next Act of DeFi: The Tug-of-War Between Idealism and Regulatory Reality

The "true DeFi" that Vitalik envisions is a system where native assets like ETH serve as collateral, algorithmic stable assets act as intermediaries, and diversified indices serve as pricing benchmarks; however, the current reality is a liquidity network centered around fiat-pegged assets like USDC, with tension running throughout the industry. The former is ideologically more thoroughly decentralized but faces significant resistance in terms of technology, liquidity, and user mentality; the latter is smoother in user experience and compliance integration but deeply ties systemic risks to the dollar and regulatory cycles.

From the perspective of pathways and timelines, it is difficult for algorithmic accounting assets and de-dollarization pricing to complete a transition in the short term, and they are more likely to coexist in a hybrid form for the long term. Technically, liquidation mechanisms, risk hedging tools, and oracle security need iteration; in terms of compliance, the regulatory stance of various countries on algorithmic assets remains highly uncertain. For participants, a more realistic strategy is to closely monitor several signals: the design evolution of mainstream protocols regarding collateral and pricing units, formal statements from regulators on illegal fiat-pegged assets, and how capital markets treat such assets within valuation frameworks. Once these boundaries begin to loosen, the underlying pricing and yield structure of DeFi may finally welcome true reconstruction.

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