Vitalik's New Article: Low-Risk DeFi is to Ethereum What Search is to Google
Chainfeeds Guide:
I'm laying my cards on the table: previously, it was due to circumstances, but now I am very optimistic about DeFi and also want to make money from DeFi. The Chinese version was compiled and published by Odaily.
Source:
Author:
Vitalik Buterin
Opinion:
Vitalik Buterin: There has long been a core contradiction within the Ethereum community: one type of application is able to generate enough economic value to support the entire ecosystem, maintain the price of ETH, or sustain individual projects; the other type is more aligned with the original intentions of people joining Ethereum. Historically, these two types of applications have often been disconnected: the former includes NFT, Memecoins, and certain lending and incentive-driven DeFi loop logics—users leverage lending to extract incentives, even to the extent that ETH becomes valuable because people use ETH to trade and leverage ETH in a self-reinforcing manner; the latter includes Lens, Farcaster, ENS, Polymarket, Seer, or privacy protocols. These non-financial or semi-financial applications are culturally appealing but have low actual usage and contribute little capital, insufficient to support a 500 billions USD ETH economy. This disconnect has triggered conflicts within the community, with many hoping that a certain application can meet both needs simultaneously. As of this year, low-risk DeFi has gradually begun to play this role: its significance to Ethereum is akin to search for Google. Google has browsers, Pixel phones, AI models, Go language, and other innovations, but the real profit comes from search and advertising. Low-risk DeFi is similar; it is the core business of inclusive payments and savings on a global scale, able to provide sustained economic support. Unlike Google, Ethereum’s decentralization philosophy is stronger, and low-risk DeFi has a high degree of consistency between “doing good” and “doing well”—a consistency not present in the advertising model. So-called low-risk DeFi includes not only basic functions like payments and savings, but also synthetic assets, fully collateralized lending tools, and the ability to exchange between them. There are two reasons to focus on low-risk DeFi: first, it provides irreplaceable value to Ethereum and its users; second, it culturally aligns with the goals of the Ethereum community and the technical characteristics of L1. Historically, DeFi has relied more on high-risk, high-reward to attract users. For example, the BAYC Otherdeeds auction once pushed ETH gas fees to a record high, but such activities lack long-term utility. The regulatory environment has exacerbated the problem—the more transparent an application is, the more likely it is to be regarded as a security, while “useless” speculative applications are ironically safer. At the same time, early protocol vulnerabilities, oracle risks, and other unknowns made risks too high, forcing the market to rely only on short-term incentives and subsidies. But as protocol security improves and risks gradually decrease, low-risk applications are beginning to emerge. Although attacks and loss events still occur, they are now more often found in speculative fringe areas, while mainstream core DeFi is becoming increasingly robust. From a tail risk perspective, traditional finance is equally uncertain, and in times of global political turmoil, even riskier. For many users and businesses without reliable traditional financial channels, DeFi instead becomes a safer entry point to the global market. Low-risk DeFi cannot create returns out of thin air, but it can make real global economic opportunities accessible and permissionless. Low-risk DeFi also has several excellent characteristics that make it an ideal choice aligned with Ethereum’s culture: it uses ETH as collateral and consumes Gas, providing economic support for the ecosystem; its goals are clear—universal global payments and wealth accumulation; it does not introduce improper incentives to L1, such as the centralization tendencies caused by the pursuit of high-frequency efficiency (which is more suitable for L2). Unlike Google advertising, which relies on data collection, low-risk DeFi can maintain Ethereum’s positive-sum spirit. Revenue-generating applications may not be the most innovative or exciting, but at least they are not embarrassing or unethical. If Ethereum’s largest application were political meme coins, the legitimacy of the ecosystem would be undermined; whereas low-risk DeFi achieves global financial inclusion. In the future, it can evolve into more complex applications: as the on-chain financial and non-financial activity ecosystem matures, reputation-based low-collateral lending may become a breakthrough for inclusive finance; if prediction markets become more efficient, they could serve as hedging tools, integrated with DeFi on the same platform to lower participation thresholds; in addition, although low-risk DeFi is mostly based on USD stablecoins, it can gradually expand to new forms such as currency baskets, CPI stablecoins, or personal tokens. Through these evolutions, low-risk DeFi can not only sustain the Ethereum economy in the long term but also collaborate with experimental applications, forming a direction the community can be proud of.
Source of contentDisclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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