Ethereum co-founder Vitalik Buterin wants to replace the debt-and-liquidation model that powers most of decentralized finance with an options-based architecture designed to survive market crashes without forced selloffs.
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Buterin proposes options-based DeFi model to replace debt structures
Ethereum co-founder Vitalik Buterin wants to replace the debt-and-liquidation model that powers most of decentralized finance with an options-based architecture designed to survive market crashes without forced selloffs.
Ethereum co-founder Vitalik Buterin published a research proposal on June 1 that would replace collateralized debt positions — the foundation of most DeFi lending today — with options contracts tied to asset indices, aiming to eliminate the sudden liquidations that cascade during market downturns.
"What if we use options as the base of DeFi, instead of CDPs and liquidations?" Buterin wrote in the post on EthResearch, the Ethereum research forum.
Under the current model, users borrow against crypto collateral to mint synthetic assets or stablecoins. When collateral values fall below thresholds, positions are liquidated automatically, often triggering cascading forced selling. Buterin's alternative would give users exposure through options contracts tied to broader indices, allowing positions to diverge gradually from target allocations rather than being wiped out instantly.
A key design feature is reduced reliance on real-time price oracles, which have been a frequent attack vector in DeFi. Buterin said the options-based framework could function with "slow oracles" similar to those used by prediction markets, making manipulation harder. He said he would feel "much safer" holding algorithmic stablecoins built on such a structure than one dependent on real-time oracle feeds that could be exploited.
The proposal comes with tradeoffs. Buterin acknowledged the system would require regular portfolio rebalancing, and it remains unclear whether those adjustments can be executed cheaply enough to avoid excessive slippage during volatile conditions. The concept remains theoretical and has not been implemented on Ethereum.
The research builds on Buterin's broader push for what he has called "low-risk DeFi." In a September 2025 blog post, he argued that such frameworks are critical for Ethereum's long-term economic sustainability, comparing the need to how advertising revenue supports Google's broader portfolio. The proposal suggests the architecture of DeFi itself — not just patches to existing liquidation mechanisms — may need to change to withstand future market stress.
This article is for informational purposes only and does not constitute investment advice.
