Original author: Alex Liu, Foresight News
The Accusations Against Vitalik
Vitalik Buterin’s controversial views on DeFi came from a post in which he responded to a thread accusing him of miscommunication on the topic of DeFi. The post read:
“Vitalik, I think one of the reasons people are confused or frustrated about your views on DeFi is because of miscommunication:
It seems that in your opinion, "DeFi" is the mining craze and Ponzi scheme in 2021; but for many others (I would say most people), "DeFi" means saving and borrowing money on Money Market such as Aave, CDP such as RAI (you also mentioned it!), Synthetics, etc. These are all healthy decentralized financial applications - income comes from borrowers, transaction fees, etc. (Editor's note: CDP, collateralized debt position, a decentralized stablecoin mechanism, representative projects also include Maker, and its decentralized stablecoin is DAI.)
This is perhaps why people are confused as to why Vitalik seems to be against DeFi but supports gambling/prediction markets like Polymarket and centralized stablecoins like USDC.
I agree that many of the “Ponzi economics” that are integrated into the DeFi ecosystem can only mean a temporary boost to certain metrics, but that’s not all there is to DeFi.”
Vitalik’s Response
“The revenue comes from borrowers, transaction fees, etc.
Yeah, so that worries me. Because it feels like an Ouroboros: the value of crypto tokens is that you can use them to earn a yield, and the yield is paid by the people who trade crypto tokens.
The answer is clear, for example: those who earn 8% APY in USD are being paid by those who pay 8% APY to go long ETH with 2x leverage, but this means that the DeFi market exists downstream of the ETH market, so while DeFi may be great, it is fundamentally limited and cannot be the explosive innovation that drives crypto to another 10-100x adoption.
That’s why I’d like to see a story about where the gains are coming from or could come from, that’s rooted in something external. I’ve heard of some plausible candidates! For example: cryptocurrencies are permanently more efficient at international currency transactions for fundamental structural reasons. I’d like to hear more.”
Ouroboros, the Ouroboros
Vitalik’s remarks sparked heated discussions, with many influential figures rebutting them:
Many rebuttals
Ken Deeter, Partner, Electric Capital
My knee-jerk reaction to Vitalik Buterin’s comment was: “Doesn’t this describe all of finance?”
Most finance is about “people expressing their views about the future through various instruments, and then a host of mechanisms to change that view and create markets for those who want to take the opposite view.”
In terms of structural advantages, I think DeFi through blockchain has one major advantage: trustlessness enables more of the world’s capital to participate in financial opportunities that have been unavailable to them until now.
The passive capital you see in DeFi demonstrates market liquidity or lending liquidity — I bet that for many DeFi users, this type of opportunity is difficult to access outside of the blockchain, and the automated markets make it almost trivial. As more RWAs join, these opportunities will overlap more and more with today’s tradfi.
Yes, in 2020, “Food Tokens” weren’t super efficient, but there were tons of secondary effects — testing spot markets, testing clearing systems, testing what happens when the chain gets congested, validating the need for it in advance for the blockspace explosion we’re seeing today, and other positive effects.
New platforms often become mainstream through use cases that many initially view as toys. These platforms gain enough traction to de-risk new technologies, paving the way for mainstream adoption. It’s hard not to see DeFi going through the same process today.
PaperImperium，KOL
“Vitalik’s comments reveal a misunderstanding of human economic history.
You could equally argue that all human markets are downstream of a few agricultural markets. However, barley is not necessarily a bigger base than all the “downstream” markets.”
Cryptohuntz，Alphaverse Capital CEO
“A failed perspective from Vitalik.
The value of any asset in the world, beyond holding or enjoying it, is that you can financialize it and earn a yield.
Decentralized financialization enables users to compete with large companies and middlemen and reap their benefits.”
Vitalik’s joking response
In response to the opposition Vitalik received, someone defended him: "You may be unhappy with Vitalik's comments on DeFi, but he is standing on a business standpoint." Vitalik responded humorously in his reply: "In fact, I was sitting on a recent flight, and I was sitting in economy class."
Conclusion
I also clearly disagree with Vitalik’s point of view. Does Vitalik really understand DeFi? The answer may be “yes, but not necessarily right.”
Vitalik is the philosophical source behind Ethereum as a technology platform; but his understanding of finance and DeFi may not be correct. We don’t need to over-mythologize him. In fact: “Without DeFi, the price of Ethereum might still be $400.”
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