BTC Can’t Catch Up to ETH’s Evolution: The Rise of an ETH‑Centric Financial System

※ This article is being published in its current form first and will be updated to the final Daily Crypto Times (DCT) format in 2 days.

BTC Can’t Catch Up to ETH’s Evolution: The Acceleration of an ETH-Centric Financial Structure

The new stablecoin structure recently proposed by Vitalik Buterin is far from a mere experimental idea. It presents a practical alternative to address structural vulnerabilities in DeFi and, at the same time, clearly illustrates why ETH is positioned to become the core asset of future on-chain finance.

Before diving into this article, it will be even more helpful to understand the broader context of the stablecoin market and native token security by reading the two pieces below:

• After the CLARITY Act, Stablecoins Begin to Seize the Payment Market
• The Stablecoin Surge and the Native Token Crisis: The Future of Blockchain Security

In this article, we will follow four key threads to unpack the implications of Vitalik’s model:

• A new stablecoin structure that splits 1 ETH into two derivative tokens
• Why the system does not collapse even if the ETH price crashes
• How roles may be divided between this model and existing stablecoins if it becomes reality
• Why this structure makes ETH a more critical asset than BTC

1) Vitalik’s new stablecoin model

Vitalik’s core idea is surprisingly simple.

“Split 1 ETH into two derivative tokens.”

The first is the stable-like token (sETH), which takes priority over the more stable portion of ETH’s value. Its price volatility is relatively low, making it closer to a stable store of value.

The second is the volatile token (vETH), which absorbs most of the upside and downside in ETH’s price. In practice, it behaves similarly to leveraged ETH.

The essence of this structure can be summarized in one line:

“sETH + vETH = always equal to the value of 1 ETH.”

The reason is that this model is based on “splitting,” not borrowing. Unlike traditional stablecoins that lock collateral and create debt, this approach simply divides 1 ETH into two claims, so no debt accumulates inside the system.

As a result, it becomes possible to build a structure with:

• No debt
• No liquidations
• Lower oracle dependency
• Significantly reduced risk of systemic collapse

This is a fundamentally different approach from the traditional collateralized stablecoin model and directly challenges its structural limitations.

2) The system does not collapse even if ETH falls below 0.7 sETH

Many readers will naturally ask:

“What happens to sETH if the ETH price crashes?”

The short answer is: the system does not collapse.

That is because sETH is not an absolute stablecoin like a “fixed $1,000” instrument. Instead, it is a “priority token” that takes the more stable portion of ETH’s value first.

Suppose ETH is trading at $3,000.

• sETH = $1,000
• vETH = $2,000

Now assume ETH crashes to $900. The system then reallocates value as follows:

• sETH takes as much value as possible on a priority basis
• vETH absorbs most of the loss

The outcome can be summarized like this:

• sETH ≈ $900
• vETH ≈ $0
• Total = $900 = value of 1 ETH

In other words, because vETH is structurally designed to absorb the loss, there is no need for forced liquidations as seen in traditional collateralized stablecoins. This is one of the most decisive differences between this model and existing designs.

3) If this model becomes reality, how will roles be divided with existing stablecoins?

The emergence of Vitalik’s model does not mean that existing stablecoins like USDT, USDC, or DAI will suddenly disappear. Rather, it is more likely that the ecosystem will be reorganized in a way where each asset’s role becomes more clearly differentiated.

① USDT and USDC: Fiat-based payment and settlement layer

USDT and USDC will continue to play a strong role as USD-based payment instruments.

• Global remittances
• Inter-exchange settlement
• Corporate accounting and treasury
• Regulatory-friendly infrastructure

In these domains, dollar pegs remain essential. Even with Vitalik’s model, their position as the standard for fiat-based payments and settlement is likely to remain largely intact.

② sETH: A liquidation-free on-chain stability layer

sETH is not designed to be pegged to the dollar. Instead, it aims for the following characteristics:

• No liquidations
• No debt
• Reduced oracle dependency
• ETH-native on-chain stability

Thanks to these properties, sETH can function as a stability asset within on-chain financial systems. In other words, it is less like a traditional “dollar stablecoin” and more like a native stability layer inside the ETH ecosystem.

③ vETH: A higher-octane leveraged ETH asset

Since vETH absorbs most of ETH’s price volatility, it effectively behaves as a form of leveraged ETH.

• When ETH rises, vETH rises even more
• When ETH falls, vETH takes the loss first

As such, vETH is likely to be positioned as a derivative asset for investors seeking high risk and high return.

④ DAI and LUSD: Potential role compression

Collateralized stablecoins like DAI and LUSD always carry the risk of liquidation when the price of ETH falls and collateral becomes insufficient.

By contrast, Vitalik’s model:

• Has no liquidations
• Has no debt
• Is structurally simpler
• Offers higher systemic robustness

This suggests that, over the long term, the competitive position of collateralized stablecoins could weaken relative to ETH-native structures like sETH.

⑤ Summary of ecosystem roles

Asset	Role	Strengths
USDT / USDC	Payments and settlement	USD-based, regulatory friendly
sETH	On-chain stability layer	No liquidations, no debt
vETH	High-risk derivative	Absorbs ETH volatility, leveraged exposure
DAI / LUSD	Collateralized stablecoins	Potentially shrinking role

4) Why this is exactly what makes ETH more important than BTC

Vitalik’s model is not just another stablecoin idea. It demonstrates a structure that only ETH can implement, and BTC cannot.

Because ETH is a smart contract–based asset, it can natively support:

• Asset splitting
• Derivative structuring
• Priority claim hierarchies
• Automated settlement logic

All of this can be executed directly on-chain. BTC, by contrast, is primarily designed as a simple payment and value transfer network, making it difficult to build such complex financial layers natively on top of it.

As a result, ETH is steadily evolving from a mere “asset” into “financial infrastructure”, and the functional gap between ETH and BTC is likely to widen over time.

Conclusion: ETH is no longer just an “asset” — it is becoming the base layer of on-chain finance

The model proposed by Vitalik:

• Eliminates liquidations
• Removes on-chain debt
• Reduces oracle dependency
• Maintains a simple yet robust structure
• Can structurally absorb ETH’s volatility

In doing so, it presents a new architecture for on-chain finance.

This structure not only addresses fundamental weaknesses in existing stablecoins, but also elevates ETH from a simple investment asset to the core infrastructure of on-chain finance.

Since BTC cannot natively implement such a model, the functional roles of the two assets are likely to diverge even more clearly over time.

In short, it is increasingly reasonable to say that the future of decentralized finance is likely to be built on top of ETH.

Younchan Jung
Researcher exploring structural shifts in AI, blockchain, and the on‑chain economy.

If you would like to read this article in Korean, please click the button below.

Read This Article in Korean →