The Bankless Guide to Sky Protocol
Sky Protocol, formerly known as Maker, is a decentralized finance (DeFi) protocol that allows users to generate USDS, a stablecoin pegged to the US dollar, for savings or earning yield.
Sky continues the pioneering legacy of Maker in the DeFi space, offering a unique approach to creating a stable, decentralized currency while introducing new features and upgraded tokens.
Key takeaways
- Sky Protocol offers a decentralized savings service without intermediaries, underpinned by the USDS stablecoin, the successor to Maker's DAI stablecoin.
- The protocol is governed by SKY token holders through a decentralized autonomous organization (DAO). SubDAOs, known as Stars, are responsible for building out new utilities around the base protocol.
- Ahead of Sky's official launch in September 2024, Maker boasts $6.23 billion in total value locked (TVL) and DAI enjoys a market capitalization of $5.25 billion.
What is Sky Protocol?
Sky Protocol is a DeFi project that allows users to generate the USDS stablecoin, either by depositing DAI or converting USDC, or alternatively by depositing and borrowing against crypto collateral like ETH on a Star platform like the Spark lending app.
Ultimately, this system enables individuals and businesses to access the advantages of digital money without the volatility associated with non-pegged cryptocurrencies.
Sky Protocol evolves from Maker’s original design, building on its success while introducing enhancements through Maker's planned "Endgame" overhaul. Notably, Sky rebrands the governance token MKR to SKY and the stablecoin DAI to USDS. This rebranding is part of a broader initiative to enhance decentralization, scalability, and user experience.
How does Sky Protocol work?
Sky Protocol is underpinned by a suite of smart contracts that are centered around the USDS stablecoin and the Sky Savings Rate (SSR), which users can deposit into to earn 6% annually.
Users can interact with Sky through the newly launched sky.money platform, which provides non-custodial access to the protocol’s core functionalities, like upgrading DAI to USDS, and MKR to SKY, and participating in Sky Token Rewards campaigns.
Another key element is Stars, formerly known as SubDAOs, which are smaller, specialized decentralized communities that operate atop Sky.
For example, the lending platform Spark was the first Star to launch, and it extends the Sky Protocol by allowing users to easily create collateralized debt positions (CDPs), i.e. self-generated USDS loans, by depositing supported crypto assets as collateral.
Why Sky Protocol?
Sky Protocol offers a compelling way to save and earn in DeFi, making it an attractive choice for users looking to grow their digital assets. With the Sky Savings Rate, users can earn interest on their USDS holdings, backed by a proven system that has managed billions of dollars.
Additionally, the new Sky Token Rewards system provides an opportunity to earn SKY tokens simply by participating in the ecosystem, further enhancing the value of your savings. The later introduction of the Skylink mechanism will expand these possibilities across multiple Layer 1 (L1) and Layer 2 (L2) networks, ensuring wide access to earning opportunities.
Moreover, the Stars ecosystem, with its specialized and decentralized units like Spark, will allow diverse and innovative ways to engage with DeFi, all supported by the security and scale of Sky Protocol. As more Stars launch, users will have access to a growing array of DeFi capabilities, alongside those provided by third-party, non-Stars platforms like Summer.fi and Instadapp.
How to Invest in Sky Protocol?
The primary way to invest in Sky Protocol is through its governance token, SKY.SKY holders have voting rights on key protocol decisions, such as risk parameters and the addition of new collateral types. The token’s value is tied to the success of the Sky Protocol, as fees generated from the system are used to buy and burn SKY, potentially increasing its scarcity over time.
The successor of Maker’s MKR token, SKY can be upgraded from MKR on sky.money at a fixed exchange rate of 1 MKR to 24,000 SKY. The ability for upgrading will begin on September 18th, 2024.