Embracing one of the thorniest and most promising projects in decentralized finance, Vitalik Buterin, the chief scientist and co-founder of Ethereum, is bullish on the integration of real-world assets into DeFi and stablecoins.
Buterin encouraged devs to explore blockchain-based assets tracking traditional financial instruments in a Dec. 5 blog post entitled What in the Ethereum application ecosystem excites me.
“The formula behind stablecoins can in principle be replicated to other real-world assets,” Buterin said. “Interesting natural candidates include major stock indices and real estate.”
Buterin also said that decentralized prediction markets for real-world events will continue to produce steady growth.
Coming from one of the most influential voices in crypto, the post is bound to accelerate efforts to meld TradFi and DeFi into new products and services. Buterin’s essay punctuates an especially vulnerable moment for the industry. With the FTX collapse casting doubt on the value of cryptocurrencies, Buterin’s embrace of the technology’s usefulness in real world applications is important.
“Cryptocurrency is the only thing currently being developed that can realistically combine the benefits of digitalization with cash-like respect for personal privacy,” he said.
As for the future, Ethereum’s chief scientist expects real-world asset-backed stablecoins to emerge as a popular, on-chain, monetary product.
Buterin predicts that stablecoins will splinter into three broad categories moving forward:
- “Centralized stablecoins” that are issued by a traditional legal entity,
- Decentralized “governance-minimized crypto-backed stablecoins” like RAI and LiquityUSD,
- “DAO-governed real-world-asset backed stablecoins.”
Buterin warned that centralized stable tokens are dependent on the stability of the nation where the issuer is based, primarily the U.S..
While decentralized asset-backed stablecoins are harder to regulate , Buterin said the possibility of negative interest rates prevents said assets from becoming a “convenient proxy for the dollar.”
Buterin suggests that DAO-governance, RWA-backed stablecoins could offer a “happy medium” between censorship resistance and monetary utility.
“Such stablecoins could combine enough robustness, censorship resistance, scale, and economic practicality to satisfy the needs of a large number of real-world crypto users,” he said. “But making this work requires both real-world legal work to develop robust issuers, and a healthy dose of resilience-oriented DAO governance engineering.”
While Buterin cites MakerDAO’s DAI as a possible example of an RWA-backed stablecoin, recent governance measures suggest MakerDAO will seek to limit its exposure to real-world assets.
Despite Buterin’s conviction in the value and utility offered by decentralized, he concedes that Ethereum’s scalability and usability need to improve before large populations can be persuaded to store and manage the majority of their money on-chain.
Buterin also asserts that web3 technologies are still proving themselves as providing basic monetary utility, recounting an experience where he used ETH to pay for coffee in Argentina last December.
“The one issue with my coffee transaction is that it did not really make pragmatic sense,” he said. “The fee was high, about a third of the value of the transaction. The transaction took several minutes to confirm.”
‘Free and Instant’
While Buterin said the wallet he used did not support EIP-1559 transactions at the time, meaning that transactions executed today would finalize faster on-chain, he conceded that transfers using Binance’s centralized payments service would have been “free and instant.”
However, Buterin is optimistic regarding the adoption of cryptocurrency as a monetary commodity on-chain following the shocking failure and misappropriation of customer funds by FTX, the centralized exchange.
“The FTX collapse [has] reminded everyone… that even the most trustworthy-seeming centralized services may not be trustworthy after all,” he said.