During his speech at the EthCC conference in Paris, Ethereum co-founder and lead developer Vitalik Buterin implored the Ethereum community to innovate beyond the limits of decentralized finance.
Describing non-financial utilities as “the most interesting part of the general purpose blockchain vision,” Buterin lamented that financial applications “are currently dominating the Ethereum space.”
“Being defined by DeFi is better than being defined by nothing. But we must go further. “
Buterin describes several non-financial applications for Ethereum, including decentralized social media, identity verification and attestation, and retroactive funding of public goods.
“To go beyond DeFi is not to be against DeFi. i actually think […] the most interesting Ethereum applications will combine financial and non-financial elements, ”said Buterin.
“Maybe in a few years we’ll have a lot of really exciting things […] that just provide all kinds of very diverse and real values to all kinds of people, not only within the Ethereum ecosystem, but beyond it as well, ”he added.
Buterin has already started work on financing public goods. In a July 21 blog post co-authored by Buterin, layer two scaling solution, Optimism, committed to funding open source development through a retroactive reward protocol, Optimism committing all benefits generated by the sequencing of the initiative.
Buterin attributes the Ethereum community’s concern with DeFi to two main factors.
First, Vitalik asserted that “finance is just the area where centralized technology sucks the most,” concluding that finance offers a wider area for decentralization than other centralized industries:
“I can send you a centralized email and you will receive it in a second. And sure, maybe various intelligence agencies will read it, but at least you could read it and at least you could read it in a second. International bank transfers don’t work that way.
Buterin also highlighted the prevalence of high fees to push the industry towards financial applications, noting:
“The degens can pay it, the monkeys can pay it, the orangutans can pay it.” But if we start talking about decentralized social media, where every tweet becomes an NFT, that can’t work if you have a transaction fee of $ 5.22.
However, Buterin said the challenge of high transaction fees “is now being solved” by Ethereum’s growing ecosystem of Layer Two networks.
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With work to mitigate transaction costs on Ethereum currently underway, Buterin says now is the time to start exploring how Ethereum can be used to solve other problems, stating, “The Ethereum ecosystem needs to grow. expand beyond just making tokens that help redeem other tokens. “
“If you just take that narrow thing that is DeFi, and keep pushing it endlessly […] you’re just going to get tokens that earn you profit by cultivating other currencies that are financial derivatives between other yield farming tokens, ”he said.
Although he noted that financial derivatives offer some value to the industry, Buterin cautioned against the systemic risk associated with complex derivatives, concluding, “Let’s not just do DeFi”.
“These elements are valuable until the first and second layers, […] but once you get to layer six, you actually increase financial instability and the risk of it all falling apart. “