Vitalik Buterin faces a wave of criticism for his "dislike of DeFi" stance

The crypto community has been in a particularly "hot" debate over the past 2 days when Vitalik Buterin expressed his "disinterest in DeFi protocols" stance

Vitalik Buterin "dislikes DeFi"

The start of the debate originated after the broadcast of Podcast No. 57 of Steady Lads - a channel specializing in discussing topics related to cryptocurrencies that is famous in the market - where the 3 founders of the platform Jordi Alexander, Justin Bram, Taiki Maeda and guest Kain Warwick (founder of Infinex and Synthetix) revealed a rather surprising piece of information about the "father" of Ethereum Vitalik Buterin that "he has no sympathy for DeFi".

This has unintentionally created a "drama" of debate with many different opinions that have not ended between accounts of founders, analysts from investment funds or famous crypto platforms in the market.

Most notably, the account @llamaonthebrink shared that this is "quite surprising, unbelievable and disappointing" for Vitamin's negative view (referring to Vitalik Buterin) because this information is no different from denying all purposes of building the Ethereum network - which has always been the infrastructure platform for most blockchains in the crypto world.

This person explained that "most of the ETH tokens that have value up to now come from users using them as collateral in DeFi", so it is really unclear "why does Vitamin want to reduce the emergence of more and more DeFi protocols?".

Not stopping there, this user also feels confused by the frequent praise of stablecoin USDC, an asset that has the potential to replace ETH as a store of value and blockchain neutrality.

"I still can't believe 100% that Vitalik Buterin doesn't like DeFi, I still hope that his views are shared frankly from him. If this is true, it is very disappointing for all of us, the people who are trying to protect and increase the value of ETH".

Not disappointing expectations, the founder of Ethereum responded right below with the implication that people are misunderstanding Vitalik Buterin about his "not very enthusiastic about DeFi" views.

"The father" of Ethereum clarified the information that is causing misunderstanding in the community that:

Vitalik Buterin wants to see the birth of many useful applications in a sustainable way, without sacrificing principles such as permissionless, decentralized, ... and the proof is that "I still regularly use DeFi protocols like DEX every week".

What Vitalik does not like are products that create temporary appeal, such as the liquidity farming craze in 2021 - which allows users to receive passive interest APY up to hundreds, even thousands of % just by depositing coins into these DeFi protocols without knowing "where the profit is paid from? The source of money from borrowers, or a portion of the protocol transaction fee?".

Unsustainable DeFi protocols are likened to "an endless loop": The value of crypto tokens is that investors can use them to earn interest, and that interest is paid by... those who trade crypto tokens.

Regarding the praise of Circle's stablecoin, Vitalik said:

"Although USDC is not as great as the RAI stablecoin (a stablecoin built by Reflexer Labs that is backed solely by Ether, and uses an algorithm to ensure exchange rate stability), we have to admit that USDC is very convenient and widely used.

I personally find it extremely useful for making international donations, much more convenient than banks. We are here to try to make the global economy and society more open and free. Users in emerging markets using stablecoins to trade freely is a typical real-world case".

Rebutting Vitalik Buterin's point of view, core contributor to data aggregation platform DefiLlama "0xstrobe" disagrees with the opinion that "DeFi is an endless loop".

The account "0xstrobe" makes the opposite argument to Vitalik Buterin:

• The technology of many DeFi protocols is actually very useful and valuable for other assets tokenized on the network (like centralized stablecoins, RWA), not simply embodying Ethereum performance.
• DeFi yields are also not high - and when they are high, it is probably due to market inefficiency because there are not many sophisticated users trying to exploit all the yields. The APY offered for USDC on Aave is currently 4.51%. (We are not talking about the Ponzi token printers of 2021 which I think are not representative of DeFi.)
• DeFi has improved a lot in terms of sustainability, which has been more evident in recent years, as evidenced by the inflow/outflow as well as transaction fees on these protocols that continue to attract money.
• DeFi is where a lot of potential is born to connect with TradFi: For example, borrowing USDC from a lending protocol on Ethereum, then transferring it to a CEX exchange to then deposit it on a debit card to pay for daily living expenses. Because the same activity on TradFi will have a high transaction fee, and the opportunity to borrow money needs to go through many requests that are not easy.

However, this person also agrees that DeFi alone is not enough to bring crypto a 10 to 100 times growth explosion in the future.

Notably in the debate thread, Vitalik Buterin expressed support for Real World Asset (RWA) platforms because "they help decentralized applications (dApps) face systemic risks from a single issuer or a single asset class".

The "father" of Ethereum gave Polymarket as an example, not just a financial platform but also a social awareness tool. Vitalik criticized the definition of "classifying Polymarket as gambling is a big misunderstanding" because "the public will see the importance of certain events and what types of events are likely to happen, which is less affected by biased editorial opinions than social media or news sites".

According to data statistics from Dune, the number of monthly trading users of Polymarket in August reached 54,000, setting a new record for four consecutive months. The trading volume has exceeded 380 million USD for two consecutive months, and the value of Polymarket's holdings has exceeded 100 million USD for the first time in history.

Statistics on the number of users and monthly trading volume on the Polymarket platform as of August 26, 2024. Source: rchen8 Dune Analytics.

Other KOLs' comments on Vitalik's statement

Vitalik Buterin's statement has caused a strong reaction from the DeFi community, with influential figures such as Sam Kazemian, founder of Frax Finance, saying that "he is no longer an expert when it comes to DeFi or stablecoins at the moment... making fundamental mistakes with outdated theories".

Some people also pointed out that the stablecoin that Vitalik Buterin often promotes, RAI, has a small market capitalization and poor trading volume compared to other stablecoins in the DeFi space.

Similarly, Arthur Cheong, founder and CEO of Defiant Capital, also commented that Vitalik Buterin no longer grasps the current value-driving force of Ethereum through use cases, which makes ETH have a current market capitalization of $327 billion. Evanss6 and Zaheer Ebtikar (Co-founder of Split Capital) also share the same opinion that "Ethereum's value = 100% DeFi".

Former Kyber Network co-founder Loi Luu, although agreeing with Vitalik Buterin on the view that DeFi has created an unsustainable and impractical speculative method, must admit that DeFi is the piece that has attracted many users to participate in the cryptocurrency market. This is a problem that often occurs in any young market such as NFT/memecoin... not just DeFi.

What developers need to do is to continuously upgrade and create more utilities for them in crypto, and should not downplay the importance and role of DeFi in Ethereum.

Some people even find it extremely confusing when Vitalik Buterin questions the origin of yield in the DeFi industry, because similar concepts have existed in the traditional financial industry.

Rhett Shipp, founder of Gravita Protocol, also argued that DeFi is pivotal to ETH’s growth because it accounts for a large portion of Ethereum’s usage and gas fees, which in turn helps drive value as it is heavily used as collateral in the space.

“Removing DeFi from Ethereum would mean an 80% drop in ETH’s value,” Shipp concluded.