As second layer scaling matures for Ethereum, Vitalik Buterin urges the community to grow beyond the bounds of DeFi.
During his keynote address at the EthCC conference in Paris, Ethereum co-founder and lead developer Vitalik Buterin implored the Ethereum community to innovate beyond the confines of decentralized finance.
Describing nonfinancial utilities as “the most interesting part of the general-purpose blockchain vision,” Buterin lamented that financial applications currently “dominate the Ethereum space.”
“Being defined by DeFi is better than being defined by nothing. But it is necessary to go further “.
Buterin describes various non-financial applications for Ethereum, including decentralized social media, identity verification and certification, and retroactive financing of public goods.
“Going beyond DeFi is not about being against DeFi. In fact, I think […] the most interesting Ethereum applications will combine financial and non-financial elements, ”said Buterin.
“Maybe in a few years we will have a lot of really exciting things […] that just provide all kinds of very diverse and real value to all kinds of people, not just within the Ethereum ecosystem, but they go way beyond that as well, ”he added.
Buterin has already started work on public goods financing. 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 to through the sequencing of the initiative.
Buterin attributes the Ethereum community’s concern over DeFi to two main factors.
First, Vitalik claimed that “finance is just the area where centralized technology sucks the most,” and concluded that finance offers a broader domain for decentralization than other centralized industries:
“I can send you a centralized email and you will receive it in a second. And sure, maybe several intelligence agencies read it, but at least you could read it and at least you can read it in a second. International bank transfers don’t work that way. “
Buterin also emphasized the prevalence of high fees to propel the sector towards financial applications, noting:
“Degens can pay for it, apes can pay for it, orangutans can pay for it. But if we start talking about a decentralized social network, where every tweet becomes an NFT, then that can’t work if it has transaction fees of $ 5.22 ”.
However, Buterin offered that the challenge of high transaction fees is “now being solved” by Ethereum’s growing ecosystem of layer two networks.
Related: Bitcoin falls to sixth place in daily revenue, with only 12% of Ethereum fees
With work to mitigate transaction costs in Ethereum currently underway, Buterin states that now is the time to start exploring how Ethereum can be used to address other issues, stating: “The Ethereum ecosystem has to expand beyond mere creation of tokens that help to exchange other tokens. . “
“If you just take this narrow thing that is DeFi, and keep pushing it to infinity […] You will only get tokens that will give you profit from yield cultivation in other currencies that are financial derivatives among other yield cultivation tokens, “he said.
Despite noting that financial derivatives offer some value to the industry, Buterin cautioned against the systemic risk associated with complex derivative products and concluded: “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 are actually increasing financial instability and the risk of all of this collapsing. “