For DeFi degens, Ethereum must think beyond DApps: Vitalik Buterin

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As Ethereum’s second layer scaling advances, Vitalik Buterin encourages the community to go beyond DeFi.

Ethereum co-founder and main developer Vitalik Buterin pushed the Ethereum community to innovate beyond the constraints of decentralised finance during his keynote at the EthCC conference in Paris.

Buterin bemoaned that financial applications presently “dominate the Ethereum space,” describing non-financial utilities as “the most intriguing component of the notion of general-purpose blockchains.”

“Being defined by DeFi is better than being defined by nothing. But it needs to go further.”

Buterin discusses Ethereum’s non-financial uses, such as decentralised social media, identity verification and attestation, and retroactive public goods funding.

“Moving beyond DeFi does not mean opposing DeFi. Buterin stated, “I honestly believe that the most fascinating Ethereum applications will blend parts of financial and non-finance.”

“Perhaps in a few years, we’ll have a lot of really fascinating products […] that are really delivering all kinds of extremely diverse and real value to all kinds of individuals, not only within the Ethereum ecosystem, but also far outside it,” he continued.

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Buterin has already begun work on public goods funding. In a July 21 blog post co-authored by Buterin, layer-two scaling solution, Optimism, pledged to fund open source development through a retroactive rewards protocol, with Optimism committing all profits generated through sequencing to the initiative.

Why DeFi?

Buterin attributes the Ethereum community’s preoccupation with DeFi to two main factors.

Firstly, Vitalik asserted that “finance is just the area where centralized technology sucks the most,” concluding that finance offers a larger domain for decentralization than other centralized industries:

“I can send you a centralized email and you will get it within one second. And sure, maybe various intelligence agencies will read it, but at least you could read it and at least you can read it one second from now. International bank wires do not work that way.”

Buterin also emphasized the prevalence of high fees in pushing the sector toward financial applications, noting:

“The degens can pay for it, the apes can pay for it, the orangutans can pay for it. But if we start talking about a decentralized social media, where every tweet becomes an NFT, then that can’t work if you have $5.22 transaction fees.”

Buterin claimed that Ethereum’s burgeoning ecosystem of layer-two networks is “now solving” the problem of high transaction costs.

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With work to reduce Ethereum transaction costs presently underway, Buterin believes that now is the time to start looking at how Ethereum can be used to solve other problems, noting that “the Ethereum ecosystem has to grow beyond merely making tokens that help with trading other tokens.”

“If you just take this narrow thing that is DeFi, and you keep pushing it to infinity […] you’re just gonna get tokens that give you profit from yield farming other currencies that are financial derivatives between other yield farming tokens,” he said.

Despite noting that financial derivatives offer some value to the sector, Buterin warned of the systemic risk associated with complex derivative products, concluding: “Let’s not just do DeFi.”

“These things are valuable up to layer-one and layer-two, […] but once you get to layer-six, you’re actually increasing the financial instability and the risk this whole thing is going to collapse.”

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