What Is Sky Protocol (SKY): A Decentralized Finance Ecosystem For Stablecoin Innovation

Key Takeaways

• Sky Protocol is the rebranded version of MakerDAO, a pioneering DeFi protocol, offering upgraded tokens USDS and SKY to enhance user accessibility.
• The rebranding is part of the “Endgame” plan aimed at increasing the protocol’s scalability, regulatory compliance, and market competitiveness.
• USDS is the protocol’s stablecoin, exchangeable 1:1 with the original DAI, while SKY is the governance token with a significantly increased supply compared to MKR.
• The protocol continues to operate as a decentralized, community-governed system, despite concerns about whale dominance in governance votes.
• Sky Protocol introduces features like Sky Token Rewards and the Sky Savings Rate to incentivize user participation in the ecosystem.

Sky Protocol, formerly known as MakerDAO, has emerged as one of the most innovative forces in the decentralized finance (DeFi) landscape. In August 2024, the protocol underwent a significant transformation as part of its strategic “Endgame” plan, rebranding from MakerDAO to Sky Protocol and upgrading its tokens from DAI and MKR to USDS and SKY, respectively. This bold move aimed to enhance the protocol’s image, increase its flexibility, and broaden its user base. Despite initial mixed reactions from the community, a governance vote in November 2024 solidified the decision to maintain the Sky branding. As of March 31, 2025, the SKY token is trading at approximately $1,450, with a circulating supply of 28 million tokens and a market cap of $40.6 billion, positioning it among the top DeFi protocols in the cryptocurrency market.

What Is Sky Protocol?

Sky Protocol is a decentralized finance ecosystem built on the Ethereum blockchain, designed to bring stability to the cryptocurrency economy through its innovative stablecoin and governance mechanisms. Originally launched as MakerDAO in 2017, the protocol established itself as a pioneering force in DeFi by creating one of the first decentralized stablecoins, DAI. In August 2024, as part of its evolutionary “Endgame” plan, MakerDAO rebranded to Sky Protocol, with its stablecoin DAI becoming USDS and its governance token MKR becoming SKY.

The core purpose of Sky Protocol remains consistent with its MakerDAO roots: to provide a stable, decentralized alternative to traditional financial systems. Through its upgraded stablecoin USDS, Sky Protocol offers users a cryptocurrency that maintains a soft peg to the US dollar, providing stability in the volatile crypto market. USDS can be generated by depositing collateral into the protocol, and it can be utilized across the broader DeFi ecosystem for lending, borrowing, and other financial activities.

However, a notable change in the protocol’s approach has been identified. Unlike DAI, which was minted by putting collateral such as ETH or BTC, USDS is reportedly minted in a way similar to centralized stablecoins like USDT and USDC – by putting USD in a bank or buying short-term treasury bonds. This shift represents a significant evolution in the protocol’s approach to stablecoin creation.

Who Is Behind Sky Protocol

At the helm of Sky Protocol is Rune Christensen, the visionary co-founder who initially established MakerDAO in 2015. Christensen’s “Endgame” strategy laid the groundwork for the transformation of MakerDAO into Sky Protocol, reflecting his commitment to evolving the platform to meet changing market demands and regulatory landscapes. Under his guidance, the protocol has navigated various challenges and continued to innovate in the DeFi space.

The protocol has also established significant partnerships to enhance its ecosystem. Notably, Sky Protocol has collaborated with Aave, a leading DeFi lending platform, to expand its services and reach. This partnership represents Sky’s strategy of integrating with other successful DeFi protocols to create a more comprehensive and interconnected financial ecosystem.

Beyond individual leadership, Sky Protocol is governed by its community through a decentralized autonomous organization (DAO). Token holders can vote on various aspects of the protocol, including technical upgrades, risk parameters, and strategic directions. However, the governance structure has faced scrutiny, as evidenced by the November 2024 vote to retain the Sky branding, where four large entities controlled approximately 98% of the voting power, raising questions about the true decentralization of the protocol.

How Sky Protocol Works: A Technical Explanation

Sky Protocol operates through a sophisticated system of smart contracts on the Ethereum blockchain, enabling users to interact with its two primary tokens: USDS and SKY. USDS, the protocol’s stablecoin, maintains a soft peg to the US dollar through a system of collateralized debt positions. Users can generate USDS by depositing accepted cryptocurrencies as collateral, with the protocol ensuring that each USDS is backed by more than its value in collateral, typically at a ratio of at least 150%.

One key technical aspect that differentiates USDS from its predecessor DAI is the inclusion of a freeze function, designed to enhance regulatory compliance. This feature has been controversial within the community, as it introduces an element of centralization to what was previously a fully decentralized stablecoin. However, users still have the option to continue using the original DAI token, which remains immutable by design.

The governance token, SKY, plays a crucial role in the protocol’s decentralized governance system. SKY holders can vote on various aspects of the protocol, from technical upgrades to risk parameters and collateral types. The transition from MKR to SKY included a significant redenomination, with MKR tokens exchangeable for SKY at a ratio of 1:28,000, substantially increasing the supply of SKY tokens and making them more accessible to a wider audience.

Sky Protocol also introduces new features to incentivize user participation, including Sky Token Rewards (STRs) and the Sky Savings Rate (SSR). STRs provide users with additional SKY tokens for participating in governance and using the protocol, while the SSR allows USDS holders to earn yield by depositing their tokens into a dedicated smart contract that employs various DeFi strategies.

Another innovative aspect of Sky Protocol is its system of “Sky Stars,” previously known as SubDAOs. These are independent decentralized projects that operate within the Sky ecosystem, each with its own governance process to enable specialization and autonomous decision-making. The first of these Sky Stars is Spark, an open-source liquidity protocol that further extends the capabilities of the Sky ecosystem.

Current Status of Sky Protocol In The Wider Ecosystem

In the competitive landscape of decentralized finance, Sky Protocol has established itself as a significant player, particularly in the stablecoin sector. The rebranding from MakerDAO to Sky represents a strategic pivot aimed at enhancing the protocol’s market position and accessibility to mainstream users, especially as DeFi seeks to attract users from centralized exchanges.

The reception to the rebranding has been mixed within the crypto community. Some have embraced the new identity and the technical upgrades it brings, appreciating the protocol’s efforts to evolve and adapt to changing market conditions. Others have expressed concerns about the shift away from MakerDAO’s original decentralization principles, particularly regarding the introduction of the freeze function in USDS and the concentration of voting power in a few large entities.

In November 2024, the community held a governance vote to decide whether to retain the Sky branding or revert to MakerDAO. The vote resulted in 79.3% support for maintaining the Sky identity, with only 18.46% backing a limited brand refresh under MakerDAO. However, the vote revealed a centralization issue, as four whale entities controlled most of the voting power, with each securing about 20% of the votes. This outcome has sparked discussions about the true nature of decentralization in governance systems dominated by a few large stakeholders.

Despite these controversies, Sky Protocol continues to operate as a core infrastructure component in the DeFi ecosystem. Its stablecoin, whether in the form of USDS or the original DAI, remains widely used across various DeFi applications for lending, borrowing, and as a stable store of value. The protocol’s commitment to innovation and adaptability positions it well for continued relevance in the evolving DeFi landscape.

Sky Protocol’s Price Journey

The price trajectory of Sky Protocol’s governance token has been shaped by both market conditions and protocol-specific developments. The original MKR token experienced significant price volatility during its existence, reflecting the broader crypto market trends as well as the growing adoption of DeFi applications.

The transition from MKR to SKY in August 2024 introduced a new chapter in the token’s price history. The redenomination at a ratio of 1:28,000 significantly increased the token supply, inherently adjusting its unit price. This change was designed to make the token more accessible to a wider audience, potentially attracting new users to the ecosystem.

Following the rebranding, the SKY token faced initial market uncertainty, with some community members expressing concerns about the direction of the protocol and the implications of the changes. One holder commented, “I was a big holder of Maker. Time after time I’ve been disappointed with their decisions. I dumped 100% of it today on this news,” reflecting the sentiment of some investors who viewed the rebranding negatively.

The governance vote in November 2024, which resulted in retaining the Sky branding, provided some clarity and stability for the token’s market position. Framework Ventures co-founder Vance Spencer noted that SKY had not yet had the opportunity to launch effectively, citing a lack of support on major exchanges and the timing of the rebrand coinciding with a significant market pullback.

As of March 31, 2025, the SKY token is trading at approximately $1,450, with a market cap of $40.6 billion. The token’s price performance continues to be influenced by broader market trends, DeFi adoption rates, and the ongoing implementation of the protocol’s “Endgame” strategy.

Current Data and Interesting Statistics About Sky Protocol

• Sky Protocol maintains a total value locked (TVL) in the billions of dollars, cementing its position as one of the top DeFi protocols by this metric.
• The governance vote to retain the Sky branding saw 79.3% support, with 63,874 MKR tokens pledged in favor of the Sky identity.
• Four whale entities controlled 98% of the voting power in the rebranding decision, highlighting the concentration of governance influence.
• The token exchange ratio from MKR to SKY is 1:28,000, designed to increase accessibility by expanding the token supply.
• USDS maintains a 1:1 exchange ratio with the original DAI, allowing users to freely move between the two stablecoins.
• Sky Stars, the rebranded SubDAOs, operate as independent decentralized projects within the Sky ecosystem, with Spark being the first example.
• The protocol’s “Endgame” plan consists of five phases, with the rebranding representing the completion of Phase One.

What Is The Future of Sky Protocol?

The future of Sky Protocol is closely tied to the continued implementation of its ambitious “Endgame” strategy. Beyond the completed Phase One (rebranding), the roadmap includes the launch of SubDAOs (now Sky Stars), the introduction of AI governance tools, the implementation of governance participation incentives, and ultimately the development of a dedicated blockchain for backend operations. These advancements aim to create a more efficient, accessible, and resilient DeFi ecosystem.

As regulatory scrutiny of the cryptocurrency space intensifies, Sky Protocol’s balance between innovation and compliance will be crucial. The introduction of features like the freeze function in USDS indicates a willingness to adapt to regulatory requirements, potentially positioning the protocol favorably in a more regulated future landscape. However, the protocol must navigate these adaptations carefully to maintain its decentralized ethos and community trust.

The success of Sky Protocol will also depend on its ability to attract and retain users in an increasingly competitive DeFi environment. By simplifying its interface, increasing token accessibility, and offering attractive incentives like Sky Token Rewards and the Sky Savings Rate, the protocol is strategically positioning itself to appeal to both experienced DeFi users and newcomers. The key to Sky Protocol’s future lies in its capacity to evolve while staying true to its foundational principles of decentralization and financial inclusion.

Navigating the DeFi Skies

Sky Protocol represents a fascinating evolution in the decentralized finance landscape, transforming from the pioneering MakerDAO into a more accessible and potentially more sustainable ecosystem. Through its rebranding and technical upgrades, the protocol demonstrates a willingness to adapt to changing market conditions, regulatory environments, and user needs, all while striving to maintain its core commitment to decentralized governance and financial stability. The journey from MakerDAO to Sky Protocol has not been without controversy, particularly regarding the concentration of governance power and the introduction of more centralized features. However, these challenges reflect the broader tensions within the cryptocurrency space as it matures and seeks wider adoption. As Sky Protocol continues to implement its “Endgame” strategy and navigate the complex DeFi landscape, it stands as a testament to the resilience and adaptability of blockchain-based financial systems, offering valuable insights into the future direction of decentralized finance.