Vitalik Buterin Says Most DeFi Is a Lie—Here’s What Really Counts

Ethereum co-founder Vitalik Buterin and crypto analyst c-node have reignited the debate over the true purpose of Decentralized Finance (DeFi).

Together, the two industry experts challenge the booming industry to rethink its priorities.

Experts Clash Over What Counts as “Real” DeFi

The underlying issue, according to the experts, is that much of today’s DeFi hype is superficial, serving speculative interests rather than advancing genuinely DeFi infrastructure.

“There is no reason to use DeFi unless you have longs on cryptocurrencies and want access to financial services while preserving self-custody,” c-node wrote.

They dismissed common yield-generating strategies—like depositing USDC into lending protocols—as “cargo cults,” suggesting they mimic DeFi’s success without embodying its original ethos.

The analyst further emphasized that non-Ethereum chains may struggle to replicate Ethereum’s DeFi boom, noting that early ETH participants were ideologically committed to self-custody. Meanwhile, newer ecosystems are dominated by venture capital funds using institutional custodians.

Buterin’s reply offered both a counterpoint and a broader framework for what counts as “real” DeFi. The Russo-Canadian innovator argued that algorithmic stablecoins, particularly when overcollateralized or structured to decentralize counterparty risk, qualify as genuinely decentralized.

“Even if 99% of the liquidity is backed by CDP holders who hold negative algo-dollars and separately positive dollars elsewhere, the fact that you have the ability to punt the counterparty risk to a market maker is still a big feature,” Buterin wrote.

DeFi’s Ideological Divide and the Push for Decentralized Risk

The Ethereum co-founder also criticized popular USDC-based strategies, noting that simply depositing centralized stablecoins into lending protocols fails to meet the criteria for DeFi.

Beyond technical definitions, he articulated a long-term vision: moving away from dollar-denominated systems toward diversified units of account backed by decentralized collateral structures.

The discussion highlights a deeper ideological divide within crypto:

• On one side, DeFi is seen as a tool for speculative capital efficiency—leveraging positions and generating yields without relinquishing custody.
• On the other hand, it is viewed as a foundational financial system capable of reshaping the global monetary sector through decentralization and risk distribution.

Subsequent replies in the thread reinforced this tension. Some argued that using DeFi with centralized assets still reduces intermediaries, potentially lowering systemic risk.

Others, however, sided with c-node’s purist view, predicting that market forces will favor self-custody-driven protocols over hybrid or fiat-backed systems.

This debate may shape the next phase of crypto innovation. Ethereum’s dominance in DeFi, fueled by ideological early adopters, contrasts sharply with other chains, where venture-backed investors prioritize convenience over decentralization.

Meanwhile, Buterin’s push for overcollateralized algorithmic stablecoins and diversified indices points to a possible evolution beyond current dollar-pegged structures.

As DeFi approaches its second decade, these discussions show that the sector is no longer just about yields and liquidity.

Instead, the conversation is turning toward the very principles that define it—custody, decentralization, and risk distribution.

This raises questions about whether DeFi can truly offer an alternative to TradFi systems or remains a sophisticated tool for crypto speculators.