In a recently penned research post, Buterin has put forward a vision for index-tracking assets utilizing options contracts as an alternative to the current debt-based frameworks in DeFi.
By Margaux Nijkerk|Edited by Nikhilesh De Jun 1, 2026, 5:01 p.m. 2 min readMake preferred onKey Points:
- Vitalik Buterin, one of the co-founders of Ethereum, suggested a shift from the debt-and-liquidation model prevalent in DeFi to an options-based framework that could help users engage with assets like the U.S. dollar or crypto indexes without the risk of sudden liquidations during market declines.
- He believes this design would lessen the dependency on real-time price oracles, a significant risk factor in DeFi, although it would necessitate regular rebalancing and is still in the conceptual phase.
Vitalik Buterin, co-founder of Ethereum, is investigating innovative methods to create crypto investment products that could mitigate one of the most significant risks in decentralized finance: unexpected liquidations.
In a research post published on Monday, Buterin proposed the development of index-tracking assets that leverage options contracts instead of relying on the traditional debt-based structures that characterize much of DeFi today. This concept aims to enable users to gain exposure to a collection of crypto assets, akin to an index fund, without the need for collateralized debt positions (CDPs), which can be obliterated by sharp market movements.
Buterin queried, "What if we use options as the base of DeFi, instead of CDPs and liquidations?" in a post shared on X.
Currently, DeFi users typically borrow against crypto collateral to create synthetic assets or stablecoins. However, if the value of that collateral plummets too rapidly, their positions may be automatically liquidated, often leading to cascading forced sales during market turmoil.
Buterin posited that an options-based model could transform this abrupt "you get liquidated" scenario into a more gradual process. Instead of an immediate loss of a position when market prices move unfavorably, the exposure would diverge progressively from a target allocation, potentially enhancing the system's resilience during volatile periods.
One significant benefit, as noted by Buterin, is that this new design could operate with slower-moving price oracles, which are the data sources that inform DeFi protocols about asset valuations. Most current DeFi applications depend on near real-time oracle updates, which can be vulnerable to manipulation in times of market instability.
Conversely, he explained that an options-based model could function with "slow oracles" similar to those used in prediction markets. This approach could diminish the risk of protocols acting on faulty price data and reduce the necessity for immediate automated liquidations.
This proposal is especially pertinent to algorithmic stablecoins, which have traditionally relied on oracle systems and collateral mechanisms that may fail under duress. Buterin expressed that he would feel "much safer" holding algorithmic stablecoins constructed on an options-based framework compared to those dependent on real-time oracle feeds that could be subject to manipulation.
However, the idea comes with its own set of challenges. Buterin acknowledged that implementing such a system would necessitate regular portfolio rebalancing, and it remains uncertain whether these adjustments can be executed in a cost-effective and efficient manner to prevent excessive trading fees or slippage.
Though the concept is still theoretical and has yet to be realized on the Ethereum platform, it signifies a broader initiative by Buterin to reevaluate the core principles of DeFi and create systems that emphasize stability over leverage.
Read more: Buterin says Ethereum Foundation will shrink, sell less ETH, and focus on 'CROPS'
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