Ethereum has spent years under a torrent of criticism questioning whether its flagship use case—decentralized finance (DeFi)—has any real merit. Suddenly, one of the people spearheading those criticisms is the network’s founder, Vitalik Buterin.
“The kinds of applications that I want to see are applications that are (i) useful in a sustainable way, and (ii) don't sacrifice on the principles (permissionlessness, decentralization, etc),” tweeted Buterin on Sunday while discussing his views on DeFi.
He praised decentralized exchanges, stablecoins, and Polymarket as examples, but criticized unsustainable products from the “2021-era liquidity farming craze.”
The kinds of applications that I want to see are applications that are (i) useful in a sustainable way, and (ii) don't sacrifice on the principles (permissionlessness, decentralization, etc)
I think DEXes are great, and I use them every week.
Buterin’s latest comments are a response to growing frustrations within the Ethereum community that the ecosystem’s most influential voice is only “begrudgingly tolerating” DeFi while trying to champion other niche use cases that haven’t found the same product-market fit.
“One of the most critical things that he’s gotten wrong over the last five years is the importance of DeFi,” said Synthetix founder Kain Warwick in a Friday podcast appearance, accusing Buterin of “moralizing” to other industry heads to “stop doing DeFi.”
“He keeps trying to meme non-DeFi things into existence,” Warwick continued. “The reality is that the market’s right—you’re not right.”
Following the episode, many were disappointed to learn that Buterin hasn’t been welcoming or encouraging of DeFi on Ethereum, aside from the exceptions he mentioned. On the other hand, several hardcore Bitcoiners were pleasantly surprised by Buterin’s comments, finding unexpected common ground with him on his opposition to DeFi yield schemes.
As Buterin later clarified, his criticism even extends to DeFi protocols that provide token holders with yield from borrowers and trading fees, rather than token inflation or “ponzinomics.”
“It feels like an ouroboros: the value of crypto tokens is that you can use them to earn yield which is paid for by... people trading crypto tokens,” he wrote.
Even overcollateralized lending markets that use ETH as collateral—such as Aave—are limited in Buterin’s view, since the value and existence of those markets are ultimately downstream of the ETH market.
“I would love to see a story for where the yield is coming from, or could come from, that's rooted in something external,” he said. “I have heard plausible candidates… I would love to hear more.”
