Vitalik Buterin Proposes Options-Based DeFi to Replace CDPs and Liquidations

Ethereum co-founder Vitalik Buterin proposed rebuilding decentralized finance around options contracts rather than collateralized debt positions, aiming to move away from the debt-and-liquidation model used by many algorithmic stablecoins and perpetual futures.

“Ethereum's Vitalik Buterin is rethinking how DeFi handles market crashes In a research post published Monday, Buterin proposed creating index-tracking assets using options contracts rather than the debt-based structures that underpin much of DeFi today”

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In a research post shared on X, Buterin asked, "What if we use options as the base of DeFi, instead of CDPs and liquidations?"

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The proposal argues that liquidation-based synthetics depend on real-time price oracles, and Buterin said this dependency is the main vulnerability because real-time oracles can only rely on a small number of automated actors watching live price feeds.

Buterin’s options framework would remove forced liquidations by letting an oracle report a value at maturity rather than continuously, with the design described as splitting each ETH into two tokens (P and N) that always sum to one ETH.

The Defiant described the shift as eliminating forced liquidations and letting synthetic assets run on slow, prediction-market-style oracles rather than the real-time price feeds driving most of DeFi today.

Buterin’s critique centers on how real-time oracles leave no room for dispute resolution, recourse, or slow-but-secure verification, and he contrasted that with prediction markets that can use a backstop oracle.

In the Ethereum Research post as quoted by Cryptopolitan, Buterin wrote, "You cannot use what is by far the most effective technique to make a safe and cheap oracle: put a prediction market in front of a safe but expensive oracle".

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Cryptopolitan also said Buterin argued that single-source oracles create an unacceptable centralization risk for markets with hundreds of millions of dollars at stake, and it referenced his call for "median-of-3 independent sources" as a mandatory settlement mechanism for prediction markets.

The Defiant added that the design is solvent by construction because splitting one ETH into a P/N pair fixes that, so the oracle can resolve at maturity instead of every block.

U.Today framed the same core idea as removing liquidation entirely and replacing abrupt outcomes with smoother changes in exposure, while noting Buterin’s view that real-time oracle dependence is a key flaw.

The proposal comes with explicit tradeoffs, including drift and the need for users to rebalance as prices move toward option strike prices, rather than relying on a binary liquidation event.

“Aevo DeFi vaults attacked, losses around $2”

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Cryptopolitan said Buterin described the realistic range of drift as "standev ~1-4% per year" and said the design is "unusable as an 'accounting stablecoin'" but works in the context of wanting price stability.

CoinDesk reported that Buterin said he would feel "much safer" holding algorithmic stablecoins built on an options-based structure than holding those that depend on real-time oracle feeds that could potentially be manipulated.

CoinDesk also emphasized that the idea would require regular portfolio rebalancing and that it remains unclear whether those adjustments can be made cheaply and efficiently enough to avoid excessive trading costs or slippage.

The Defiant concluded that the post is research-grade rather than a deployment plan and noted that no protocol has yet committed to building on the spec.