Key Takeaways:
- Sky Protocol receives a “B-” rating from S&P Global Ratings.
- The S&P Global Market report has identified three weaknesses related to Sky Protocol.
- According to S&P Global Markets, an upgrade is highly unlikely in the next 12 months.
Sky Protocol, the decentralized lending platform formerly known as Maker and issuer of the USDS and DAI stablecoin, received a ‘B-‘ credit rating from the S&P Global Ratings. The “B-” rating essentially implies the protocol’s potential to pay its financial obligations, but it is limited by a number of severe risks inherent in its current structure and the larger DeFi landscape.
Founded in 2017, rebranded to Sky Protocol in 2024, issues the USDS stablecoin, the third-largest stablecoin according to S&P Global, with a market capitalization (cap) of around $7.98 billion at the time of writing. Other product offerings by Sky include savings products such as sUSDS and sDAI. These savings products were involved in lending against crypto, holding reserves in stablecoins and tokenized money market funds.
According to the S&P Global report, the ‘B-‘ rating is primarily constrained by three key weaknesses-
High concentration of depositors: According to the report, Sky Protocol could be at risk of a liquidity run due to massive withdrawals by a small number of large depositors, especially if the confidence in USDS drops due to a cyberattack. A very small group of depositors controls the majority of liquidity in Sky’s protocol. Sky mitigates such risks by holding 20%-30% of assets in instantly available USDC and tokenized Treasury funds. Another mechanism in order to avoid liquidity runs, in case of massive withdrawals, Sky can re-adjust interest rates, which would avoid large-scale exits.
Weak risk-adjusted capitalization: The risk-adjusted capital ratio of Sky was 0.4% as of July 27th, 2025. S&P views this ratio as very low. Moreover, according to the report, Sky has a heavy reliance on governance tokens with limited crisis value and exposure to high-risk assets like USDe (Ethena’s stablecoin). Several operational risks related to smart contract exploits or oracles persist. According to S&P, the current earnings remain weak, and its safety cushion is too small. Sky has a fixed 70 million USDS reserve fund along with its own tokens, but the reserve value doesn’t account for how risky its assets are. This means the buffer may be insufficient if the protocol faces bigger-than-expected losses.
Highly centralized governance: S&P report claims that Sky Protocol’s decision-making power is extremely centralized, even though it’s supposed to be a decentralized protocol. Co-founder of Sky, Rune Christensen, owns 9% of the voting tokens. Due to lower voter turnout, he has a significant say on critical decisions. If a person or collective had more tokens than he did, they could take over. A similar incident occurred in February 2025. In order to prevent this incident, Christensen has to borrow against his own tokens, which would be extremely risky if they were sold off. Sky plans to make governance more decentralized by splitting responsibilities between a Core DAO (setting rules and standards) and smaller Sub DAOs (running specific projects).
The S&P Global Ratings could downgrade Sky within a year if it does not address the following shortcomings as described above. An upgrade is unlikely soon and would require stronger decentralization, bigger dynamic reserves, and less depositor concentration.
