Vitalik reveals three major challenges of decentralized stablecoins, with oracles and yield competition becoming key

The demand for stablecoins in the crypto industry has never stopped, but how to create truly decentralized and risk-resistant stablecoins remains a challenge. Recently, Vitalik pointed out that there is a need for better decentralized stablecoin solutions, but the industry must first address three core issues. This not only reflects the complexity of stablecoin design but also indicates the future development direction of this sector.

Why Stablecoins Still Need Upgrades

Decentralized stablecoins seem simple—just keep the coin price stable. However, in reality, existing stablecoin solutions all have their shortcomings. Centralized stablecoins like USDC and USDT are widely used but carry issuer risk; pure algorithmic stablecoins (such as early Luna/UST) have repeatedly demonstrated their fragility. When Vitalik talks about “better decentralized stablecoins,” he refers to solutions that can maintain price stability while truly achieving decentralized governance and resistance to censorship.

Analysis of the Three Major Issues

The Dilemma of Tracking Indexes

Most stablecoins are currently pegged to the US dollar, but this choice itself is problematic. While the USD is relatively stable, it is still influenced by Federal Reserve policies and exposes non-US users to exchange rate risks. Vitalik suggests that an ideal stablecoin should track a more neutral and robust index—such as a basket of commodity prices, energy costs, or other objective indicators. Such a design would make stablecoins closer to real purchasing power rather than simply following a country’s monetary policy.

The Centralization Dilemma of Oracles

To keep a stablecoin’s price anchored, real-time price data is needed. This requires oracles. However, current oracle designs often rely on a small number of data providers, making them vulnerable to manipulation by large funds or attacks. Vitalik emphasizes that oracles must be truly decentralized and incorporate mechanisms to prevent large-scale price manipulation from destabilizing the stablecoin. This involves innovations in incentive design, penalty mechanisms, and data validation at multiple levels.

The Balance of Staking Rewards

Decentralized stablecoins typically rely on staking mechanisms to maintain price stability. But if yields are too high, they can attract speculative capital, increasing systemic risk; if yields are too low, it becomes hard to attract enough stakers. Finding the right balance between these is a key challenge in stablecoin design. Vitalik highlights this point, indicating that the issue remains unresolved.

Why These Issues Are Critical

These three issues may seem like technical details, but they fundamentally determine whether decentralized stablecoins can be truly usable. If a stablecoin tracks an index improperly, users won’t hold it long-term; if the oracle is unreliable, prices can be easily manipulated; if the staking mechanism is poorly designed, the system risks collapse. Vitalik raising these questions signifies his focus on the fundamental design problems of stablecoins, beyond mere technical iterations.

The Industry’s Next Steps

According to recent news, Vitalik has spoken on multiple topics—from supporting privacy tools to emphasizing Ethereum’s role as the “world computer.” This reflects his focus on infrastructure development within the ecosystem. As stablecoins form the foundation of DeFi, their proper design will directly impact the entire ecosystem’s growth. Future projects are expected to attempt breakthroughs in these three areas, including innovative price tracking mechanisms, more secure oracle designs, and more flexible staking incentive models.

Summary

The three major issues highlighted by Vitalik essentially ask: how to balance decentralization, security, and usability? These are not only core challenges for the stablecoin sector but also ongoing considerations for the entire DeFi ecosystem. Solutions to these problems will determine the next generation of stablecoins and could further advance the development of the entire crypto financial system.