Options over debt: Vitalik proposes abandoning CDPs and liquidations in DeFi

Ethereum co-founder Vitalik Buterin has published a proposal on Ethereum Research and X, detailing a plan to rebuild synthetic assets in decentralized finance around options contracts. 

This is considered a move away from the debt-and-liquidation model that most algorithmic stablecoins and perpetual futures are being used for today.

What does Vitalik’s DeFi proposal change?

The current DeFi synthetics work through collateralized debt positions (CDPs) whereby a user locks ETH, borrows a synthetic dollar, and faces forced liquidation if the collateral’s value drops below a threshold. 

This liquidation depends on a real-time price oracle firing accurately under stress, according to the Ethereum Research post.

Buterin says this dependency is the main vulnerability of the model, as real-time oracles can only rely on a small number of automated actors watching live price feeds. They leave no room for dispute resolution, recourse, or the kind of slow-but-secure verification that prediction markets already use, he wrote.

Why does Vitaalik want slow oracles instead of fast ones?

One of the design’s trade-offs, as Vitalik mentioned, is that it removes the need for instantaneous price feeds. 

Oracles only need to report a value at maturity, which could be weeks or months away. However, that delay opens the door to verification methods that are impractical in real time, including prediction-market-style dispute resolution where a slow but secure backstop oracle settles disagreements.

In April, Buterin called for a “median-of-3 independent sources” as a mandatory settlement mechanism for prediction markets after a Polymarket trader allegedly earned $34,000 by manipulating a Paris weather sensor with a hair dryer. He described single-source oracles as an unacceptable centralization risk for markets with hundreds of millions of dollars at stake.

In May, he went further, calling oracle quality “the biggest issue facing” prediction markets and advocating for decentralized oracles with private voting to resist manipulation, as Cryptopolitan reported at the time.

How will users hold synthetic dollars?

The options framework shifts rebalancing responsibility from an automated protocol to individual users. 

A user wanting USD exposure would buy deep in-the-money P tokens with strike prices far below the current ETH price. As ETH’s price moves closer to the strike, the user rotates into options with lower strikes, the Ethereum Research post explains.

According to Buterin, with liquidation-based synthetics, normal conditions feel stable until a sudden forced exit wipes out a position; however, with options-based synthetics, extreme price moves create a gradual, quadratic deviation from the target exposure rather than a binary wipeout. The user retains control over when and how to adjust.

The proposal acknowledges that the design is identical to scalar prediction markets, which is a format that already exists and has traded for years. That overlap means options-based synthetics could share oracle infrastructure with prediction market platforms, increasing security for both.

What does this mean for the broader DeFi ecosystem?

The proposal comes as Buterin continues to push prediction markets toward what he considers more socially useful applications. In a February post on X, he warned that platforms were “over-converging to an unhealthy product market fit” by chasing short-term crypto price bets and sports gambling for revenue. 

He called the trend “corposlop” and also stated that the sector should pivot toward generalized hedging, where both sides of a trade benefit long-term.

That hedging vision is connected to the options framework published on June 1. If prediction markets and DeFi synthetics share the same oracle and settlement layer, users could hedge personalized baskets of real-world expenses instead of just tracking a single dollar peg.