Vitalik points out the three major bottlenecks in the crypto stablecoin ecosystem

Ethereum founder Vitalik recently posted an article pointing out that the crypto industry still needs to overcome three key challenges to achieve more robust decentralized stablecoin solutions. His series of insights clearly define the development direction for the entire industry and reveal the deep-seated challenges faced by current stablecoin mechanisms.

The Challenge of Tracking Indices Beyond the USD Peg

The most common approach for stablecoins is to establish a 1:1 peg with the US dollar, but Vitalik believes this single reference target has limitations. Ideally, decentralized stablecoins should be able to track an index that is more appropriate and representative than the USD price. This means developing new valuation mechanisms to reflect broader economic realities, rather than simply relying on USD fluctuations. Currently, most projects still adhere to traditional USD-pegged models, and innovative multi-asset basket tracking solutions are yet to be solved.

Building Truly Decentralized Oracle Designs

The operation of stablecoins depends on price data provided by oracles. However, Vitalik points out that existing oracle designs still face centralization risks—large amounts of funds could be controlled by a few participants. To realize truly decentralized stablecoins, a set of oracle architectures that are resistant to manipulation, censorship-resistant, and highly decentralized must be developed. This involves balancing data accuracy and real-time updates while preventing malicious actors from interfering with price data. It is a complex issue involving cryptography, economic incentives, and game theory.

Resolving the Competition in Staking Yields

There is a competitive issue within the stablecoin ecosystem regarding staking mechanisms. Different stablecoin projects raise staking yields to attract users, which can lead to unhealthy yield competitions. Vitalik believes this problem needs to be systematically addressed to prevent the stablecoin ecosystem from falling into an arms race of yields. The industry needs to find a balance that incentivizes user participation without overpromising and threatening system stability.

Vitalik’s insights profoundly reveal the fundamental challenges in developing decentralized stablecoins. Successfully addressing these three major issues will have a far-reaching impact on the long-term healthy development of the entire crypto ecosystem.