“Don’t Pick Up Ordinary People” V. Buterin’s Warning Against Decentralized Finance – Cryptocurrencies

DeFi’s loan protocols are in full swing on Ethereum, a reality that will not have escaped anyone in the industry, with everyone commenting on it. This is particularly the case of Vitalik Buterin – the co-founder of Ethereum -, who recently warned against the dangers of smart contracts in these protocols. It was in fact during an appearance on Laura Shin’s podcast made for the platform’s fifth anniversary that Ms. Buterin engaged. He therefore invites his community to remain cautious and not to invest all of their savings in DeFi.

The many risks of smart contracts

During this interview, Vitalik Buterin was asked what constituted his main criticisms and concerns about DeFi.

The latter explains his concern about the way many people seem to underestimate the risks of smart contracts. He then tackles the interest rates charged on the various protocols which are exponentially higher than those offered in banking institutions. He deduces that DeFi offers are much riskier and that sooner or later they will break down. For him, there is no doubt thata determined and more reasonable percentage margin will eventually be fixed on the protocols.

“DeFi is a cool thing, but don’t act like it’s an environment where you have to push a lot of ordinary people into which they can put their savings.”

Mr. Vitalik Buterin then looked at the loan model practiced by the different protocols that according to him is not sustainable. He claims that the high interest is paid by the protocol granting the loan. Knowing that these protocols will not be able to indefinitely produce tokens to attract customers, the system should quickly reach its limit. It’s a matter of the short term. Once the incentives are gone, you can easily see the rates of return drop to almost 0% “.


Some responsible projects

If the intervention of Vitalik Buterin on DeFi news was marked primarily by concern, even criticism, of a model bordering on scam, which has not always been the case in the past.

He readily admits thatthere are a few responsible projects in this ecosystem that are taking DeFi to the top. He even went so far as to defend them earlier this year when the sector was under attack from a few pirates. Many projects responsible for DeFi devices have survived for a long time without being attacked. This is certainly not an inherent property of DeFi itself, and there is a way to do it responsibly ” he said last May at the virtual summit Ethereal.


Vitalik Buterin seems skeptical that DeFi will survive with its current model, which he finds too risky. However, as we have already reported on TCT, we will agree that the Ethereum platform owes part of its real value to the growth of decentralized finance on the network. Its disappearance or poorer performance would a priori be a blow to the 2nd market capitalization.

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