DeFi’s Foundational Flaw: Why We Still Need a Sovereign Dollar

The decentralized finance ecosystem has grown into a multi-hundred-billion-dollar parallel economy. It promises a world of open, permissionless, and equitable finance. Yet, the very foundation of this new world is built on a profound compromise. The bedrock of DeFi, the asset that prices its markets and facilitates trillions in transactions, is the stablecoin—and our current stablecoins are fundamentally flawed.

We built this system to escape the whims of centralized powers, yet we have shackled ourselves to digital dollars that are either beholden to the very banks we sought to replace or carry hidden systemic risks. For DeFi to fulfill its true promise of financial sovereignty, it must be built upon a credibly neutral dollar—one as resilient and transparent as the blockchain itself. The hard truth is, despite years of innovation, that currency doesn’t truly exist at scale yet.

The State of Our Union: A Foundation of Compromise

The stablecoin market today is a landscape of trade-offs, where every major player asks its users to accept a different, significant compromise.

First, we have the Behemoths: USDC and USDT. Together, they represent the vast majority of the market. They offer deep liquidity and a sense of familiarity, but they are a philosophical Trojan Horse. USDC, issued by the U.S.-regulated Circle, is a direct IOU on the traditional banking system, and its stability is subject to the health of its banking partners—a risk made painfully clear during the 2023 SVB crisis.

USDT, while unparalleled in liquidity, operates under a persistent cloud of doubt regarding its reserves. For years, the market has voiced concerns over Tether’s “attestations,” which fall short of a full, independent audit from a top-tier firm. These reports have revealed a complex and opaque mix of assets beyond simple cash and T-bills, including commercial paper and secured loans to unspecified parties. This lack of verifiable transparency forces the market into a “trust me” model, a direct contradiction of the “don’t trust, verify” ethos that underpins the entire crypto movement. More importantly, both USDC and USDT are censorable. They are surveillance-friendly instruments where transactions can be blocked and funds can be frozen at the address level. They are, in essence, a more efficient version of the old system, not a new one.

In response to this, we have the Decentralized Predecessor: MakerDAO’s DAI. For years, DAI has been the standard for those seeking a more censorship-resistant alternative. It proved a decentralized stablecoin was possible. However, DAI carries its own critical compromise: collateral centralization. To maintain its scale, DAI has become heavily reliant on centralized assets like USDC for its backing. This creates a dangerous systemic dependency. If Circle were ever compelled by regulators to freeze the USDC held in Maker’s vaults, it could trigger a catastrophic cascade, threatening the very stability of the ecosystem’s leading “decentralized” stablecoin. Furthermore, minting DAI is a complex, high-risk endeavor, requiring users to manage their own collateralized debt positions—a barrier too high for the average user.

More recently, a New Wave of Risk has emerged with protocols like Ethena’s USDE. While innovative, these “synthetic dollars” reintroduce a different vector of centralization: custodial risk. By taking user funds and managing them on centralized exchanges, they expose their holders to a chain of counterparty risks—the protocol itself, the custodian, and the exchange. A failure at any point in that chain could be catastrophic.

The DeFi Imperative: The Need for a Sovereign Dollar

This analysis leads to an unavoidable conclusion: DeFi’s growth is built on a fragile foundation. For our ecosystem to mature and achieve true sovereignty, it needs a stablecoin that adheres to the principles we claim to value.

The ideal digital dollar must be:

1. Truly Decentralized: Its collateral must be crypto-native (like ETH) and held transparently on-chain, with zero dependence on the traditional banking system or centralized corporate issuers.

2. Genuinely Resilient to Seizure: It must be non-custodial and censorship-resistant at the protocol level. No single entity should have the power to freeze funds.

3. Risk-Abstracted for the User: It must be accessible to everyone, not just sophisticated financial engineers. The burden of managing complex risks should not fall on the end-user who simply wants to hold a stable asset.

USPD - The Dollar for the Decentralized Nation

Amidst this landscape of compromise, we are on a mission to solve this trilemma. 

USPD (US Permissionless Dollar) has been designed from first principles to address the exact issues outlined above.

At its core, USPD attempts to combine the best of its predecessors while discarding their flaws. Like DAI, it is decentralized and uses on-chain collateral. But unlike DAI, it uses only staked ETH (stETH), completely avoiding exposure to centralized assets. This is a crucial design choice that aims for true credible neutrality.

Most importantly, with USPD we are introducing a risk-abstracted model. Instead of forcing users to manage their own debt positions, USPD outsources the complex task of hedging ETH’s volatility to a professional, decentralized network of “Stabilizers.” These Stabilizers use their own capital to maintain a delta-neutral position on the protocol’s reserves, effectively absorbing the market risk. For the end-user, the experience is simple: a 1:1 conversion of stETH into a stable, natively yield-bearing dollar.

The Challenges Ahead and Staying the Course

Of course, our path is fraught with challenges. As a new protocol, we face a monumental task in overcoming the network effects of our entrenched competitors. The liquidity moats of USDT and USDC are vast, and attracting a critical mass of users and integrations will be an uphill battle.

We still have to prove ourselves to the DeFi community and our industry as a whole. USPD has not yet been “battle-tested” through the crucible of multiple black swan events in the way that DAI and even USDC have. However we are confident that the design of USPD can overcome these challenges and we as a team are committed to facing them head on.

The search for a truly decentralized, stable, and safe digital dollar is one of the most important quests in our industry. USPD presents a compelling and thoughtfully designed architecture that directly addresses the foundational flaws of current stablecoins. It is a move away from accepting compromises and a renewed focus on building infrastructure that aligns with our core values and a vital step in our collective journey toward financial sovereignty.

We believe USPDs architecture will and should become the benchmark for decentralized stablecoins. For us, there is no doubt that true decentralization, verifiable transparency, and user-centric risk management are the principles upon which the future of DeFi must be built.