During his keynote 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 non-financial utilities as “the most interesting part of the vision of general-purpose blockchains,” Buterin lamented that financial applications currently “dominate the Ethereum space.”
“Being defined by DeFi is better than being defined by nothing. But it needs to go further.”
Buterin outlines several non-financial applications for Ethereum, including decentralized social media, identity verification and attestation, and retroactive public goods funding.
“Moving beyond DeFi is not about being against DeFi. I actually think […] the most interesting Ethereum applications are going to combine elements of finance and non-finance,” said Buterin.
“Maybe a few years from now we’ll have a lot of really exciting things […] that are just providing all kind of very diverse and real value to all kinds of people, not just within the Ethereum ecosystem, but also going far beyond it as well,” he added.
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.
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.”
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 for daily revenue, with just 12% of Ethereum’s fees
With work to mitigate transaction costs on Ethereum currently underway, Buterin asserts that now is the time to begin exploring how Ethereum can be used to tackle other issues, stating: “the Ethereum ecosystem has to expand beyond just 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.”