According to The Block, the international credit rating agency S&P Global Ratings has assigned a “B-” credit rating to the decentralized finance protocol Sky Protocol. According to Sky, this is the first credit rating report issued by the agency for a stablecoin system.
According to the S&P official website, a “B” rating indicates a higher vulnerability for the institution in the face of adverse business, financial, and economic environments, but it still possesses the capability to meet its financial obligations. S&P stated in the report:
Sky was founded in 2017, originally as Maker. As part of the “Endgame” plan, the protocol underwent a significant rebranding in 2024 and introduced several new features, including the launch of the decentralized US dollar stablecoin USDS (a new version of the native stablecoin DAI) and a governance token SKY to replace MKR. According to data from DefiLlama, USDS is currently the fourth largest stablecoin globally, with a market capitalization of approximately $5.04 billion (or $9.3 billion if including DAI).
Governance Centralization Becomes a Potential Concern
S&P pointed out that although Sky founder Rune Christensen holds only 9% of the governance tokens, his influence over the future direction of Sky is considerable due to the low voting participation rate.
The credit rating report also highlighted that the high concentration of a few large depositors increases the risk of a liquidity run. S&P noted that its 0.4% risk-adjusted capital ratio and the lack of a dynamic adjustment mechanism for surplus reserves are “notable weaknesses.”
Other risks include “low probability, high impact” cybersecurity risks associated with storing assets using smart contracts, as well as ongoing uncertainties regarding the future regulatory treatment of decentralized finance.
These risks are only partially offset by Sky’s stable record of maintaining extremely low credit losses during previous market downturns and its moderate profitability since 2020. The credit rating agency also considered Sky’s practices in reducing cybersecurity risks, such as rigorous smart contract audits and vulnerability reward programs.
Rating Outlook and Possible Adjustment Factors
S&P indicated that within the next 12 months, if the protocol’s liquidity is insufficient to support sudden large withdrawals or if losses from crypto-asset collateralized loans exceed surplus reserves, it may downgrade the rating. Adverse regulatory developments could also lead to a downgrade.
S&P emphasized that the likelihood of Sky receiving a rating upgrade within the next 12 months is extremely low. However, if it can effectively reduce governance centralization risks over a longer term, raise its risk-adjusted capital ratio to acceptable levels, and prevent excessive concentration of depositors, there remains a chance for an upgrade.