Ethereum co-founder Vitalik Buterin introduced a concept for recreating synthetic assets based on options instead of traditional debt positions.
He believes this approach will eliminate forced liquidations and reduce reliance on high-speed oracles.
The developer noted that current DeFi protocol models are vulnerable during sharp market downturns. The use of secured debt leads to cascading liquidations, which create excessive pressure on the network and market prices.
The proposed scheme is built on a pair of assets (P and N) with a strike price S and an expiration date M. They are issued by splitting 1 ETH and can be redeemed at any time. At expiration, an oracle records the index value, and funds are distributed between the owners of P and N.
“Since the total payout is always 1 ETH, the possibility of liquidation is absent,” Buterin emphasized.
The main advantage of the model, according to the programmer, is its resistance to manipulation. Existing protocols require real-time price updates, creating security risks and MEV vulnerabilities. The option structure allows for the use of “slow” oracles, similar to those used in prediction markets.
To maintain stable exposure (e.g., pegging to the dollar), Buterin suggested using deep-in-the-money options with regular automatic rebalancing through a DAO or local scripts.
Among the potential drawbacks of the concept, the developer highlighted:
- the risk of slippage during frequent rebalancing (costs can reach 2% per year);
- quadratic deviation from the target index;
- the complexity of implementing effective on-chain automation.
Buterin added that he would feel “much safer” holding algorithmic stablecoins built on such an architecture, rather than those based on latency-sensitive price feeds.
In early March, Ethereum’s founder introduced a plan for two key changes to the network’s execution layer: transitioning to a binary state tree and the long-term replacement of the EVM.
In March, Buterin called for the ecosystem to be restructured around privacy and AI.