Sky Protocol: Behind One of Crypto's Fastest Growing Stablecoins

• MakerDAO is one of the oldest and most battle-tested protocols in DeFi
• USDS has grown to over AUD $12.8 billion ($8 billion USD) in circulation and is still climbing
• Sky's total value locked has reached AUD $11.3 billion ($7.08 billion USD)
• Protocol fees flow back to SKY token holders through a buyback mechanism

What is Sky?

Sky, previously MakerDAO, launched its first stablecoin, DAI in 2017 and became one of the most important protocols in decentralised finance (DeFi), services that run on blockchain rails without traditional banks or middlemen. MakerDAO created DAI, a stablecoin pegged to the US dollar, and for years, it was the dominant way people in crypto accessed a stable digital currency without relying on a centralised company.

In 2024, MakerDAO rebranded to Sky. The core idea stayed the same, but the scope expanded significantly. The protocol now issues a new stablecoin, USDS, alongside the original DAI, and introduces a new governance token, SKY to replace the old MKR token. MKR holders could convert their tokens into SKY at a ratio of 1 MKR to 24,000 SKY.

Sky runs on Ethereum, the world's largest smart contract blockchain. It operates as a collateralised debt position (CDP) protocol, which means users lock up crypto assets as collateral and borrow stablecoins against them. Think of it like a crypto-backed loan, where the borrowed amount is always less than what you put up as security.

The stablecoin engine

SKY's core product is the stablecoin. Originally DAI, now primarily USDS, it works differently from stablecoins like Tether or USDC. Those are predominantly backed by cash and treasury bonds held by a centralised company. USDS is backed by crypto assets and, increasingly, real-world assets (RWAs) like tokenised government bonds, which are traditional financial instruments brought onchain.

USDS growth over time (source)

USDS has grown from near zero at the start of 2025 to over AUD $12.8 billion ($8 billion USD) in circulation. That growth reflects rising demand for decentralised stablecoins, particularly as institutions look for onchain alternatives to centralised issuers. Real-world assets now make up a meaningful portion of the collateral backing USDS, which earns Sky yield in the form of interest. That interest becomes revenue for the protocol.

Sky's total value locked, which measures the total amount of assets deposited into the protocol, sits at AUD $11.4 billion ($7.38 billion USD). Demand for the protocol's lending and savings products is significant. The Sky Savings Rate, a feature that lets USDS holders earn yield by depositing into the protocol, has also been a significant driver of this growth.

How the protocol makes money

Sky generates revenue through interest. When someone borrows USDS by locking up collateral, they pay a stability fee, which is essentially an interest rate on the borrowed USDS. The protocol also earns yield on the real-world assets held as collateral.

That revenue feeds a buyback mechanism for the SKY token. A portion of the protocol's fees is used to repurchase SKY from the open market, reducing the circulating supply over time. This creates a direct link between protocol usage and tokenomics. The more USDS is borrowed and the more collateral earns yield, the more revenue flows back through the system. Growth in stablecoin demand drives revenue, revenue funds buybacks, and buybacks benefit token holders.

Fees over time for SKY (source)

Expansion across Layer 2s and what comes next

Sky is actively pushing USDS beyond Ethereum's main network onto Layer 2 networks, which are faster and cheaper blockchains built on top of Ethereum. This expansion is designed to make USDS more accessible and cheaper to use for everyday transactions, not just large DeFi positions.

The protocol is also working on what it calls SubDAOs, which are smaller, more focused protocols that sit within the Sky ecosystem. Each SubDAO can specialise in a particular area, such as lending in a specific market or managing a specific type of collateral. This creates a modular structure in which Sky serves as the backbone, with smaller ecosystems built on top.

Stablecoin regulation is becoming a serious topic of discussion in major economies, including the United States and the European Union. A cleaner legal environment could open the door to broader institutional adoption of USDS, particularly if Sky can demonstrate that its decentralised backing model meets emerging standards. That outcome is not guaranteed, and the regulatory path remains uncertain.

Opportunities and risks

The opportunity for Sky is straightforward. Stablecoin usage is growing across DeFi, payments, and institutional finance. Sky has a multi-year head start, a proven track record through multiple market cycles, and a revenue model that generates real returns.

The risks are also real. Sky's reliance on crypto as collateral means a sharp market downturn could trigger a wave of liquidations, in which collateral is automatically sold to cover debt. The protocol has weathered these events before, including during the March 2020 crash, but they remain a structural vulnerability. The inclusion of real-world assets adds stability but also introduces new risks around asset custody and counterparty reliability.

Competition is intensifying. Ethena and other newer stablecoin protocols are competing for the same DeFi liquidity. And with the majority of the SKY supply already in circulation, the buyback mechanism carries most of the weight in supporting token value.

Summary

Sky is one of the few DeFi protocols with a genuine track record spanning multiple years and multiple market cycles. The rebrand from MakerDAO was not just cosmetic. It came with a new stablecoin, a new token structure, and a broader ambition to expand USDS across chains and into real-world asset markets. The protocol generates real revenue, runs a meaningful buyback programme, and sits at the centre of one of the fastest-growing segments in crypto.

The stablecoin market is still in an early growth phase globally, and Sky's infrastructure is well-positioned to capture a share of that demand. How the protocol navigates competition and the evolving regulatory environment will shape where it sits in the DeFi ecosystem over the next few years.