Sky (ex-Maker): What is the value of this new DeFi protocol and its ecosystem?

What you need to know 🐳

MakerDAO has officially been renamed Sky since 18 September, in line with the "Endgame" plan initiated almost two years ago now by its iconic co-founder Rune Christensen. This major change is intended to enable the emergence of a DeFi ecosystem better suited to its DAI stablecoin (soon to be renamed USDS), even as the competition comes into its own.

General presentation 🧬

Since 18 September, MakerDAO has officially been renamed Sky. This change of name and operation is in line with the "Endgame" plan presented by its creator Rune Christensen in October 2022.

This transformation marks a small revolution for one of the pioneering decentralised finance protocols (DeFi). Launched by the Danish entrepreneur in 2014, MakerDAO has been issuing DAI, the largest decentralised stablecoin, since 2017. With more than $5.2 billion in circulation, the DAI currently occupies 3rdᵉ place in the stablecoin market, all issuance methods combined, behind the giants Circle (USDC) and Tether (USDT).

This change of operation is accompanied by the introduction of two new tokens: SKY, which will replace MKR, and USDS, which will succeed the DAI. A third token, the PureDAI, may be introduced in due course (see "How it works" section). This development is intended to encourage the emergence of an ecosystem specifically focused on stablecoin.

Sky's operation is also intended to be more in line with the requirements of global regulators, in particular by incorporating the ability to freeze addresses for USDS stablecoin. This new feature has sparked reactions in the community, as such an option did not exist with DAI.

Until now, Sky (formerly MakerDAO) has always been able to adapt to overcome the various crises in the crypto ecosystem. A major turning point for the protocol was the integration of US Treasury bonds in October 2022, enabling attractive yields to be maintained despite the fall in cryptocurrency prices.

This development demonstrates the adaptation of DeFi players, who are now integrating centralised products from traditional finance to diversify and increase their resilience.

Historically, MakerDAO has built a solid reputation in the DeFi ecosystem, thanks in particular to prudent risk management that has made it one of the most reliable players in the sector over the years.

Financing 💰

The Maker Foundation has raised a total of $54.5 million.

In December 2017, at the launch of stablecoin DAI, Andreessen Horowitz (a16z) and Polychain Capital led an initial funding round of $12 million.

In September 2018, a16z acquired 6% of MKR tokens for $15 million. The following year, MakerDAO received $27.5 million in strategic funding, led by DragonFly and Paradigm, for 5.5% of MKR.

The initial allocation of MKR tokens was as follows:

👉 69.50% for the founders and the project

👉 15.00% for the team

👉 15.50% for the investors

In 2021, the MakerDAO Foundation - a non-profit organisation set up in 2018 to oversee development and funding - announced its dissolution. The move was aimed at transferring governance of the protocol to the MKR holders.

Following this dissolution, MakerDAO, now under the direction of the MKR holders, took over governance of the protocol.

Team and community 👾

Rune Christensen is the founder and figurehead of Sky. The Danish entrepreneur created MakerDAO after studying biochemistry at the University of Copenhagen.

While often presented as decentralised, Maker remains heavily influenced by its creator. A long-standing member of the Maker community told The Big Whale: "Rune has largely driven the direction of the protocol since its launch".

Other key figures include Sébastien Dérivaux, co-founder of Steakhouse Financial. This company has been producing Maker financial statements for several years. In particular, the Frenchman led Maker's DAO during the refinancing deal with SG-Forge in January 2023.

Sam MacPherson, who is more discreet, is known for having founded Spark, the main DeFi protocol linked to Maker. Spark, comparable to Aave, enables decentralised lending.

SkyBase International, the entity responsible for supporting the development of the Sky protocol, has established its headquarters in the Cayman Islands.

On social networks, Sky gathers 280,000 subscribers on X (formerly Twitter).

Operation ⛓️

With DAI, Maker aims to offer a stablecoin with decentralised operation, capable of resisting censorship, and is therefore in direct opposition to centralised stablecoin issuers such as Tether and Circle, who were already the market leaders at the time.

When a user generates DAI directly via the protocol, Maker has no way of seizing or freezing it, unlike most other stablecoins.

Historical Maker operation

One of the main benefits of DAI is that it allows ETH or BTC holders to generate stablecoins without selling their cryptocurrencies. To do this, investors deposit over-collateralised collateral in ETH or BTC. This over-collateralisation is imposed by the protocol to protect against the volatility of these assets.

Investors then pay a variable borrowing rate, adjusted according to market conditions. In traditional finance, this mechanism is similar to a Lombard loan.

To recover their assets, investors must repay the loan interest in DAI, as well as a stability fee payable only in MKR - the protocol's governance token. This MKR is then "burned", i.e. permanently removed from circulation.

Over time, Maker has expanded its collateral options to include stablecoins, starting with USDC, with a 1:1 ratio to generate DAI. This decision was taken following "Black Thursday" on 12 March 2020, when ETH fell 40%, threatening the stability of DAI.

Major innovations include the Peg Stability Module (PSM), a dedicated vault allowing users to exchange stablecoins such as USDC, PYUSD (PayPal) or GUSD (Gemini) for DAI at parity, while exploiting arbitrage opportunities. It is partly for this reason that DAI is sometimes considered an algorithmic stablecoin.

It is important to note that governance has never approved the inclusion of USDT in its reserves, deeming the risks associated with Tether stablecoin too high.

The integration of new tokens with Sky

From 18 September, as part of the "Endgame" plan, two new tokens will make their appearance.

The first, SKY, will be the new governance token for the ecosystem. MKR holders will be able to exchange it for SKY at a rate of 1 MKR for 24,000 SKY. In addition, users will be able to exchange their DAI for USDS, the ecosystem's new stablecoin.

These exchanges will remain optional for the time being, with DAI and MKR tokens continuing to exist and function as normal. The reverse exchange will also be possible at any time.

In a second phase - the date of which has yet to be specified - Sky will introduce a second stablecoin, the PureDAI. This can only be generated using ETH or stETH (the synthetic representation of ETH stashed at Lido Finance, the sector leader with 23.5 billion TVL). A special feature of PureDAI is that it cannot be frozen or captured by any entity.

Rune Christensen added: "Eventually, DAI will gradually become obsolete as users and integrations migrate to USDS or PureDAI. The pace of this migration will depend on the speed of adoption of USDS and PureDAI by the ecosystem."

Risks and limitations 🥵

The main limitation of DAI is the over-collateralisation requirement for investors wishing to generate stablecoin directly via the protocol using BTC or ETH as collateral.

Like any loan, there is a liquidation risk for DAI borrowers in the event of a significant fall in the prices of the cryptocurrencies deposited as collateral.

Remarkably for DeFi, the Maker protocol has never been hacked. The DAO has hired several companies, including PeckShield, to carry out security audits. In the summer of 2023, MakerDAO teamed up with Sherlock to run a contest to audit the "Endgame" transition plan, offering a $1.35 million reward for finding bugs.

However, DAI's major challenge remains maintaining its peg to the dollar via a complex system that must ensure both its decentralisation and substantial revenues.

System for maintaining parity with the dollar:

To maintain its peg to the dollar, DAI employs three main mechanisms:

- Interest rates: Paid by borrowers and adjustable according to market conditions via a governance vote within the DAO by MKR token holders.
- The Dai Savings Rate (DSR): Rewards users who immobilise their DAI, thereby helping to maintain parity. The rate, set by governance vote, varies between 2% and 15% depending on market conditions.
- The Peg Stability Module (PSM): Allows arbitrageurs to exchange stablecoins such as USDC for DAI at parity, and vice versa, depending on fluctuations against the dollar.

In bullish periods, this approach is highly advantageous. Investors are encouraged to deposit ETH and BTC as collateral, as their value increases proportionally. This enables them to obtain leverage on other decentralised finance protocols (DeFi).

At the same time, Maker sees its revenues increase thanks to the rates paid by borrowers. However, this system shows its limits in a bear market, as borrowers become scarcer.

At the height of the last bull market, Maker had a total locked-in value (TVL) of almost $20 billion, for around 10 billion IADs in circulation.

The situation deteriorated drastically in the third quarter of 2022. After a summer marked by the collapse of several centralised platforms and the stablecoin Terra-Luna, MakerDAO recorded an 86% drop in revenues compared with the previous quarter, making a net loss for the first time since 2020.

In addition, in the summer of 2022, Circle froze several USDCs linked to Tornado Cash. At the time, Circle's stablecoin represented more than half of Maker's reserves, raising concerns about the stability of DAI's peg.

Faced with these challenges, Rune Christensen proposed in October 2022, as part of the "Endgame" plan, to include US Treasuries in DAI's reserves. This decision came at a time when central banks were significantly raising their key interest rates.

Maker thus invested $500 million of its reserves in US Treasuries for the first time in October 2022. The impact was immediate: by the end of 2023, 41.5% of DAI's reserves consisted of government bonds (T-bills).

After closing 2022 with $65 million in total revenues and a net profit of $19 million, Maker experienced spectacular growth in 2023. Its revenues jumped to $222 million, generating a net profit of $21.7 million. Projections for 2024 currently anticipate a profit of $63 million.

In May 2023, Maker launched Spark, a lending protocol similar to Aave. Designed specifically to facilitate access to DAI and its returns, Spark allows investors to avoid exposure to DeFi protocols with different risk parameters to Maker.

Spark offers two main benefits: firstly, the ability to borrow DAI simply; secondly, the opportunity for investors to benefit from some of the value generated by stablecoin reserves. By depositing USDC, USDT or DAI, they can earn a current return of 6%. In return, investors receive a synthetic token, the sDAI, representing their investment within the protocol.

To date, Spark has a total locked value (TVL) of $1.5 billion and benefits from extensive integration into the Ethereum ecosystem.

The launch of Spark is of particular importance in Sky's trajectory. Indeed, it will be one of the first "subDAOs" in the new system, becoming a central entity in the new stablecoin ecosystem.

Sky ecosystem tokens and subDAOs 🪙

With the implementation of the "Endgame" plan, the Sky ecosystem is temporarily getting several doubled tokens:

- DAI and USDS stablecoins: These two representations will temporarily coexist, supported by the current DAI reserve. For the time being, they can be exchanged with each other without any particular constraints.

In the new version, users will be able to receive a return by staking their USDS or SKY within the protocol, either via the DSR (Dai Savings Rate) or via dedicated smart contracts. They will have the choice of receiving these returns in SKY or USDS.

- MKR and SKY governance tokens: Currently, these two tokens are also exchangeable with each other. Until now, holding MKR has offered few significant advantages apart from voting rights.

In the long term, holding SKY could prove interesting, as Sky aims to develop a complete DeFi ecosystem around its stablecoin. Emerging projects, initially called "subDAOs", are now being dubbed "Stars" within the Sky ecosystem.

Spark will be the first Star, with the planned launch of its own token in the coming months. Although details are still scarce, airdrops will be conditional on the number of USDS or SKY deposited in these various protocols.

Each Star will have its own community, brand and governance forum - and potentially its own token. We can therefore expect to see many Stars trying to stand out by offering their own airdrop in the coming months.

The emergence of this ecosystem centred on how stablecoin works aims to make it more efficient and resilient, while improving risk management for users.

- The future PureDai stablecoin: Its launch date has yet to be specified. This second stablecoin will only be obtainable via ETH or stETH and will be impossible to seize or freeze by any entity. Its reserves could be separated from those of the USDS, but the details have yet to be defined.

Competition ⚔️

The DAI model has inspired many DeFi players, such as Aave or Curve, who launched their decentralised stablecoins in 2023, the GHO and crvUSD respectively. But for the time being, the DAI largely dominates its decentralised competitors with 5.2 billion units in circulation (compared with 142 and 63 million dollars respectively).

The USDe issued by the Ethena protocol appears to be the most serious competitor to date. Launched in February 2024, USDe already has a market capitalisation of $2.6 billion (read our analysis).

Recently, the Maker community gave its approval to allocate, initially, 600 million IADs to acquire USDe, strengthening the collaboration between the two protocols.

Regulation ⚖️

Currently, stablecoins in the Sky ecosystem operate in a legal vacuum. The protocol has protected itself against possible action by US and UK regulators by declaring that users in those jurisdictions will not be able to hold these tokens or benefit from their returns.

Maker's decision, under the aegis of Rune Christensen, to include US Treasury bonds in its reserves has had a dual effect: it has increased the protocol's revenues, but it has also exposed it to new regulatory obligations, particularly in terms of combating money laundering and the financing of terrorism. This new reality has made it necessary to introduce an address freeze function.

In Europe, regulatory uncertainty persists for Sky. Since 1 July, the first part of the MiCA (Market in Crypto-Assets) regulation on stablecoins has been in force. Although it appears to exclude "decentralised stablecoins" - classified in the DeFi category not covered by MiCA - the term "decentralised" has not yet been given a precise legal definition.

For the time being, Dai remains available on centralised exchange platforms regulated in Europe, such as Coinbase or Binance. But what will happen after 31 December, when MiCA comes fully into force?

Where can MKR-SKY tokens be purchased?

The MKR, as well as the DAI, are available on most regulated exchange platforms such as Coinbase or Binance.

DAIand MKR circulate on most EVM (Ethereum Virtual Machine) compatible networks and are available on most DEX (decentralized exchanges), such as Uniswap. "USDS, SKY and the other tokens in the Sky ecosystem will be available on the Ethereum mainnet as well as on the main layer 2s," the Maker community team that worked on "Endgame" told The Big Whale.

Market analysis by Chadi El Adnani, Head of Research at SUN ZU Lab 📈

The price of MKR has remained stable in 2024 after a 125% rise in March. Currently, the token is trading at around $1,500, well below the $2,000 it reached at the end of August before the announcement of its transition to the Sky protocol. Daily volumes have also halved from the levels seen in March and April, currently averaging around $25 million.

Maker's total locked-in value (TVL) stagnated at around $8 billion in 2023 and early 2024, before dropping to around $5 billion in the past two months, according to data from DefiLlama. The market capitalisation of the DAI stablecoin has also stagnated at around $5 billion, down from almost $10 billion in February 2022. In comparison, the amount of stablecoins in circulation increased by $40 billion in 2024, currently reaching $170 billion, including a $30 billion increase for Tether (USDT) alone.

Long leaders, Maker and DAI appear to be losing ground in the stablecoin war. The recent transition to the Sky protocol does not, for the moment, seem to be providing the hoped-for impetus.

The Big Whale's view 🐳

Maker, renamed Sky, is a long-standing player in the sector that has managed to adapt to difficult market conditions for nearly seven years. The implementation of the "Endgame" plan is the latest illustration of this.

The protocol has always stood out for its prudent management while remaining faithful to the DeFi philosophy, which has earned it the respect of the ecosystem. This is why the decision to collaborate with Ethena, a project only a few months old, raised questions.

This reputation was reinforced in January 2023 during a refinancing operation with SG-Forge, a subsidiary of the Société Générale group.

Like any ambitious transition, this one raises a number of questions that can only be assessed once it has been put to the test.

Although Rune Christensen has regularly put forward the arguments of greater decentralisation and improved risk management to justify "Endgame", many historical players in the Maker ecosystem doubt its necessity. Several technical details remain unclear, including the management of PureDai reserves, if it sees the light of day.

Others believe that this transition could revitalise the protocol's ecosystem by encouraging the emergence of numerous players around its stablecoin, against a backdrop of growing competition from decentralised stablecoins.

We will also have to watch to see whether the new USDS freeze function will not push the historical user community towards competing projects, and above all, how it will be implemented. Recently, Rune Christensen raised the idea of a "decentralised" freeze function potentially involving Sky's decentralised governance.

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