Ethereum’s founder, Vitalik Buterin, categorizes algorithmic stablecoins as “genuine” DeFi. He suggests the industry gradually move away from the US dollar peg in favor of a basket of indices.
> inb4 “muh USDC yield”, that’s not DeFi
Would algorithmic stablecoins fall under this?
IMO no (ie. 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
Buterin outlined two paths for the sector’s development.
He referred to the creation of “stablecoins” backed by Ethereum as the “easy mode.” The advantage of this model is the ability to shift counterparty risks to market makers. The mechanism remains functional even if 99% of the liquidity is generated by collateralized debt position (CDP) holders.
The “hard mode” allows for the use of real-world assets (RWA). However, such instruments must meet strict criteria:
- high diversification of the basket;
- over-collateralization;
- a limit on the share of any single asset (it should not exceed the over-collateralization ratio).
According to Buterin, this structure would enable a stablecoin to withstand the collapse of any component of the RWA reserves.
The developer’s overarching goal is to move away from the dollar as a unit of account. Instead of fiat currency, “stablecoins” should be oriented towards broad market indices.
Meanwhile, current solutions that merely redirect the yield of centralized coins (like USDC) through lending protocols (such as Aave) are dismissed by the developer as a genuine stage in the evolution of DeFi.
Earlier in February, Buterin stated that the original concept of layer-two solutions had lost its relevance.
L2 developers responded to this statement, agreeing on the need for evolution, but differed in their views on the role of scaling.