October 7, 2022

Ethereum co-founder Vitalik Buterin says that centralized stablecoins like Tether (USDT) and Circle USD (USDC) could become “an important deciding factor in future controversial hard forks.”

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

Ethereum’s co-founder argued that centralized stablecoins could be a “significant” determinant of which blockchain protocol the industry would “respect” in hard forks.

A hard fork occurs when there is a radical change in the protocol of a blockchain network that essentially results in two versions. Usually, one chain ends up being preferred over another.

“At the time of the merger, you will have two [separate] networks […] and then you have exchanges, you have Oracle providers, you have stablecoin providers that sort of decide who they respect.”

“Because at that point, you’ll have 100 billion USDT on one chain and 100 billion USDT on the other chain, cryptographically — and so, [Tether] he has to stop respecting one of them,” Buterin explained.

However, Buterin said he had “not seen any indication” that such a dispute would be an issue in the upcoming Ethereum merger, noting that the stablecoin’s central issue is more of a concern for future hard forks.

“I think going forward, that’s definitely more of a concern. Basically, the fact that the USDC’s decision on which chain is considered Ethereum could become an important factor in future controversial hard forks.

He added that in the next five to ten years, Ethereum may see more controversial hard forks where central stablecoin providers could have more weight.

“At that point, maybe the Ethereum foundation is weaker, maybe the ETH 2 customer groups have more power, and maybe someone like Coinbase, would also run a stablecoin and buy one of the customer groups by then […] As many such things could happen,” he said.

As a possible antidote to centralization, Vitalik suggested choosing different kinds of stablecoins:

“The best answer I can come up with is to encourage the adoption of more stablecoins. Basically, you know, people could use USDC, but then they could also use DAI and like, at this point, I mean DAI has taken this kind of very decisive route of saying ‘we’re not going to be pure crypto we’re going to be a wrapper for a whole bunch of real assets.”

Related: Ethereum Merger: How Will Moving To PoS Affect The ETH Ecosystem?

The merger is one of the most critical technical updates to happen to Ethereum since its inception, as it transitions from proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.

The Merger is expected to go ahead after the successful integration of the Goerli testnet in mid-August, with Ethereum developers targeting September 19th as the eternal date for merging the current PoW chain into the PoS chain.