Vitalik Buterin has proposed a new options-based DeFi design that would replace the usual debt-and-liquidation model with paired assets that always redeem back into one ETH.
The June 1 Ethereum Research proposal starts with a simple problem: DeFi can create synthetic assets and stable-value exposure, but most designs depend on collateralized debt, real-time oracles and forced liquidations. When markets move fast, that structure can turn oracle stress into liquidation cascades and bad-debt risk.
Buterin’s alternative splits 1 ETH into two tokens, called P and N. The pair is tied to an ETH-denominated index, such as USD/ETH, CPI/ETH or another market reference. At maturity, a slower oracle resolves the final index value. P and N divide the value between them, but together they always equal 1 ETH.
That is the important shift. The system does not need to liquidate a borrower because there is no borrower carrying uncovered debt. The exposure can drift as prices move, but the pair itself remains fully backed by the ETH originally split into the two tokens.
Options Replace The Liquidation Engine
Most DeFi lending and synthetic-asset systems rely on liquidation thresholds. If collateral falls too far, the position is forcibly closed to protect the protocol. That design can work in normal markets, but it creates dependence on fast, accurate oracle prices.
CryptoAdventure recently covered how a Ventuals SPACEX market oracle error turned bad data into liquidation pressure. Buterin’s proposal attacks that problem at the design level by reducing the need for real-time oracle enforcement.
The trade-off is exposure drift. Instead of a sudden liquidation, users may slowly move away from their preferred target exposure and need to rebalance. That makes the system less brittle, but not frictionless. Slippage, market depth and rebalancing costs become the main questions.
Algorithmic Stablecoins Get A Safer Design Path
The idea also fits Buterin’s long-running interest in lower-risk DeFi and stable-value assets. A USD-tracking version of the system would resemble an algorithmic stablecoin, but without the same direct dependence on fragile liquidation machinery.
Buterin argued that he would feel safer holding algorithmic stablecoins built this way because the system can use slower, more defensible oracle processes. That connects to the broader Ethereum push toward safer primitives, the same direction seen in recent debates around Ethereum’s core guarantees and formal verification work for critical crypto infrastructure.
The proposal is still research, not a deployed Ethereum product. It needs market makers, cheap rebalancing, strong liquidity and clean UX before it can compete with normal stablecoins, lending markets or perpetuals.
Still, the design gives DeFi a serious alternative to “borrow, monitor, liquidate.” If options-based synthetics can make risk smoother instead of sudden, Ethereum could get a new foundation for stable assets, index exposure and safer onchain financial products without repeating the same liquidation failures that have defined earlier DeFi stress events.
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