Ethereum: Can Low-Risk DeFi Become the New 'Google Search'?
Low-Risk DeFi: Ethereum's Next Growth Engine?
The Ethereum community is actively debating whether low-risk decentralized finance (DeFi) can become a core driver for the network. Some proponents suggest it could mirror Google Search's role for Google, while others express caution due to competition from stablecoins and Real World Assets (RWAs).
Vitalik Buterin recently proposed that low-risk DeFi protocols such as Aave and MakerDAO could evolve into a primary revenue source for Ethereum (ETH). This model, he argues, parallels Google's reliance on Google Search for revenue.
"Importantly, low-risk DeFi is often very synergistic with a lot of the more experimental applications that we in ethereum are excited about." Vitalik observed.
Buterin emphasizes the need for safe financial activities within the Ethereum ecosystem to support savings and payments, particularly for underserved communities.
David Hoffman notes that low-risk DeFi may not generate significant blockspace demand for Ethereum. However, locking substantial amounts of ETH in lending protocols like MakerDAO, Aave, or Uniswap could establish ETH as a form of "commodity money" within the ecosystem.
Stani Kulechov envisions a future where Aave distributes yield to billions globally, transforming DeFi into a foundational financial tool.
"Low-risk DeFi is Ethereum’s workhorse: simple, powerful, and universally useful. One day, Aave could be distributing yield to billions across the globe." Stani commented.
The Counter-Argument: Revenue vs. Valuation
Critics argue that low-risk DeFi alone may not justify Ethereum's $0.5 trillion market capitalization. September trading volumes for these protocols were approximately $36 million, a figure deemed insufficient for sustained cash flow. Despite a DeFi Total Value Locked (TVL) of around $95.2 billion and a stablecoin supply of $161.3 billion, network fees may not remain attractive for validators due to low blockspace demand.
"Low-risk DeFi as Ethereum’s ‘Google Search’ can only work if it prioritizes ETH as the primary monetary asset. However, with stablecoins dominant and many pushing Ethereum as the ‘RWA chain,’ ETH must compete with an ever-increasing field of monetary assets for this position," a user shared on X.
Another concern highlights that moving lending/borrowing markets entirely on-chain at Layer-1 can degrade user experience and reduce composability. Ethereum also faces competition from payment systems like Stripe or Circle, and fee-optimized chains like Solana.
Stablecoins and RWAs: A Competitive Landscape
Ethereum faces competition from stablecoins and RWAs in its role as the ecosystem's primary monetary asset. While RWAs may offer attractive yields, ETH maintains an advantage in reliability and liquidity.
Analysts emphasize Ethereum's appeal as a neutral custody layer for centralized assets like USDC or RWAs. Storing USDC on Aave via Ethereum might be less susceptible to intervention than storing it on centralized enterprise chains, bolstering Ethereum’s censorship resistance.
While some advocate for "nationalizing" core DeFi protocols on Ethereum, many experts believe the network isn't yet prepared for low-risk, low-cost, and highly scalable DeFi services. This remains a long-term goal that extends beyond on-chain lending/borrowing.
"Enshrined services is the real endgame (one step beyond what Vitalik is saying here), but it should not be limited to lending." an expert shared on X.