VITALIK BUTERIN PROPOSES REPLACING DEFI LIQUIDATIONS WITH OPTIONS-BASED FRAMEWORK USING SLOW ORACLES Ethereum co-founder Vitalik Buterin published a research proposal on the Ethereum Research forum Monday arguing that decentralized finance’s dependence on collateralized debt positions and real-time oracle-triggered liquidations is a structural weakness that could be replaced with an options-based system, eliminating forced liquidations entirely while reducing oracle manipulation risk. Under the current DeFi model, users post collateral to borrow against or mint synthetic assets; if collateral value drops below a threshold, automated contracts trigger immediate liquidations that amplify selling pressure during market downturns. Buterin’s proposal would replace this with index-tracking instruments split into two contracts, labeled P and N, linked to a price index such as USD/ETH or a CPI-based measure, where payouts are determined at maturity by a “slow oracle” that updates infrequently and is resistant to short-term manipulation. The central advantage Buterin identified is that the options-based model works with slow oracles similar to those used by prediction markets, which update over hours or days rather than seconds. Fast oracles, which power most existing DeFi liquidation mechanisms, can be manipulated through flash loans or coordinated trades because the protocol must act on price data immediately and without time for correction or dispute. Slow oracles, because they do not need to trigger split-second automated sales, are far harder to attack. The tradeoffs include the need for regular rebalancing as the index ratio drifts, potentially increasing costs for users with large positions or frequent activity. Buterin described the proposal as early-stage research meriting further exploration rather than a production-ready specification. The proposal is specifically relevant to algorithmic stablecoin design. Most algorithmic stablecoins that have failed, including TerraUSD in 2022, collapsed because their real-time peg-maintenance mechanisms created feedback loops that amplified stress rather than absorbing it. Buterin’s model, by removing the liquidation mechanism entirely and replacing it with options contracts that spread exposure gradually over time, would give positions room to breathe during temporary volatility without triggering the cascading sales that have historically amplified crypto market crashes. The EthResearch post received substantial engagement from DeFi protocol developers within hours of publication.