August 8, 2022

Vitalik Buterin, co-founder of Ethereum, says that centralized stablecoins such as Tether (USDT) and Circle USD (USDC) could become “an important determinant in the challenging fortifications of the future.”

Buterin was speaking at the BUIDL Asia conference in Seoul on August 3, along with Ilya Polosokhin, co-founder of Near Protocol (NEAR) to discuss the upcoming Ethereum merger.

The Ethereum co-founder argued that centralized stablecoins could be an “important” determining factor for the hard fork industry “respecting” blockchain protocol.

Hard forks occur when there is a drastic change in the blockchain network protocol that effectively produces two copies. Usually, one string ends up being preferred over the other.

“At the moment of merging, you will have two [separate] Networks […] And then you have the exchanges, you have the Oracle providers, you have the somewhat stable coin providers who decide somehow, which ones to respect. “

“Because at this point, you’re going to have $100 billion in one chain and $100 billion in the other, in cryptographic form – and so on, [Tether] You need to stop respecting someone,” Buterin explained.

However, Buterin stated that he “didn’t see any indication” that such a dispute would be an issue with the upcoming Ethereum consolidation, noting that the centralized stablecoin issue is a bigger concern for future hard forks.

“I think in the near future this will definitely become a bigger concern. Basically, the fact that the USDC decision on which chain should be considered as Ethereum could become an important decision in the controversial hard forks in the future.”

He added that in the next five to ten years, Ethereum could see more controversial hard forks as centralized stablecoin providers could take on more weight.

“At this point, the Ethereum foundation may be weaker, the ETH 2 client teams may have more strength, and someone like Coinbase may be running a stablecoin and buying one of the client teams by then. […] Like a lot of these kinds of things can happen,” he said.

As a possible antidote to central actors, Vitalik suggested choosing different types of stablecoins:

“The best answer I can come up with is to encourage the adoption of more types of stablecoins. Basically, you know, people can use USDC, but then they can also use DAI and such, at this point, I mean, like DAI has taken this kind of critical path. Too much to say “We are not going to be purely crypto-economics we are going to be a wrapper for a whole bunch of real world assets.”

Related: Ethereum consolidation: How will the PoS transition affect the ETH ecosystem?

The merger is one of the most significant technical updates to happen with Ethereum since its inception, moving from a Proof of Work (PoW) mechanism to a Proof of Stake (PoS) consensus mechanism.

The consolidation process is set to continue following the successful integration of the Goerli Testnet in mid-August, with Ethereum developers targeting September 19 as the permanent date for merging the existing PoW chain with the PoS chain.