V God advocates that algorithmic stablecoins are "the true DeFi": the industry should move away from dependence on the US dollar and towards diversified indices

Ethereum Co-Founder Vitalik Buterin recently posted on X, clearly stating that algorithmic stablecoins belong to “true DeFi,” and calling for the industry to gradually move away from using the US dollar as the primary unit of account, towards more versatile diversified indices. This statement is his latest response following his January comment that decentralized stablecoins face three major unresolved issues.
(Background recap: Vitalik has warned that decentralized stablecoins still have deep flaws)
(Additional context: Vitalik is “no longer excited about Ethereum technology” and is more optimistic about practical applications)

Table of Contents

• Key advantages of ETH-backed algorithmic stablecoins
• RWA-supported stablecoins are also feasible
• Moving away from the US dollar towards diversified indices
• USDC deposited in Aave “does not count”

Ethereum Co-Founder Vitalik Buterin recently spoke out again on the topic of decentralized stablecoins. He posted on X, stating outright that algorithmic stablecoins are “true DeFi,” and offered specific insights into their design architecture and future direction.

Key Advantages of ETH-backed Algorithmic Stablecoins

Vitalik Buterin pointed out that if high-quality algorithmic stablecoins backed by ETH exist, even if the majority of liquidity is supported by CDP (Collateralized Debt Position) holders with negative algorithmic USD, the ability to transfer counterparty risk to market makers remains an important feature. In other words, the core design of these stablecoins focuses on effective risk distribution rather than completely eliminating risk.

inb4 “muh USDC yield”, that’s not DeFi
Would algorithmic stablecoins fall under this?
IMO no (i.e., algorithmic stablecoins are genuine DeFi)
Easy mode answer: if we had a good ETH-backed algorithmic stablecoin, then even if 99% of the liquidity is backed by CDP holders who…
— vitalik.eth (@VitalikButerin) February 8, 2026

RWA-supported Stablecoins Are Also Feasible

Buterin further explained that even if algorithmic stablecoins are backed by real-world assets (RWA), as long as over-collateralization and diversification ensure sufficient collateral remains in case a single RWA fails, it effectively improves risk characteristics for holders. This view aligns with the rapid growth of the current RWA tokenization market—statistics show that the RWA tokenization volume has exceeded $23 billion, with analysts predicting it could reach $16 trillion by 2030.

Moving Away from the US Dollar Towards Diversified Indices

More notably, Buterin believes the industry should gradually shift away from using the US dollar as the primary unit of account, towards more versatile diversified indices. This echoes his January stance—he previously suggested that future stablecoins should track more resilient indicators such as a basket of global commodities, energy prices, or custom consumer price indices (CPI), rather than solely anchoring to fiat currencies.

However, such attempts still face practical challenges. Previously, Reflexer’s RAI aimed to create a non-pegged, low-volatility token, but its market cap performed far below expectations, indicating limited market acceptance for stablecoins that are detached from fiat currency pegs.

USDC Deposited in Aave “Does Not Count”

Buterin also specifically pointed out that depositing USDC into Aave does not fall under the category of decentralized stablecoins as he describes. This statement implies that, in his definition, true DeFi stablecoins require decentralized architecture at the core, not just decentralized protocols at the interaction layer.

Industry should develop along these directions and gradually move away from using the US dollar as the primary unit of account, towards more versatile diversified indices.

It’s worth noting that although the total stablecoin market size has surpassed $316 billion, the growth is still mainly driven by fiat-backed centralized stablecoins. The development of decentralized alternatives remains relatively stagnant, and Buterin’s latest comments may inject new momentum into discussions in this field.