Sky Protocol (Formerly MakerDAO): What It Is, How DAI and USDS Work

Sky is the same protocol as MakerDAO, renamed and extended. MakerDAO launched DAI in 2017. It became one of the first widely used decentralized stablecoins ⁹¹. On August 27, 2024, MakerDAO announced the Sky brand. The Block described Rune Christensen as MakerDAO's founder, and he outlined the plan on the project's forum ¹. The new tokens went live on September 18, 2024 ².

The rebrand added tokens rather than replacing them:

• USDS is a second stablecoin. Any DAI can be converted to USDS 1:1 and back, with no fee. Sky's docs say a fee can never be added to that converter ³.
• SKY is the new governance token. Each MKR converts to 24,000 SKY ⁶.

DAI and MKR remained in use ¹. Governance itself moved to SKY on May 19, 2025, when a new voting contract took over ⁸⁹. Since then, conversion runs one way only, from MKR to SKY. MKR holders who did not convert by September 18, 2025, face a delayed upgrade penalty. It started at 1% and is scheduled to rise by 1 percentage point every three months unless governance decides otherwise ⁷⁸.

Sky also reorganized parts of the ecosystem into semi-independent units called Stars. Spark was the first ¹. Some Sky rewards are paid in Star tokens such as SPK or GROVE ²⁰. See CoinPulse's SparkDAO curator rating.

DAI and USDS are crypto-collateralized stablecoins designed to track one US dollar. For how this differs from cash-backed coins like Circle's USDC, see types of stablecoins. No company holds bank deposits to redeem them on demand. They come into existence in three main ways:

1. Borrowing. A user locks collateral in a Sky vault and mints DAI or USDS as a loan. The loan accrues a stability fee, which is interest set by governance ¹³.
2. The LitePSM. This module swaps DAI or USDS for USDC and back at a fixed 1:1 ratio, with no slippage. Swap fees are not active today, but governance could turn them on ¹¹. Much of the coins' peg support therefore rests on USDC held by the protocol.
3. Conversion. DAI and USDS convert into each other 1:1 ³.

Both tokens are standard Ethereum ERC-20s that support signature-based approvals ("permit") ²²³. USDS sits behind an upgradeable proxy. Sky governance can change its code ³. Bridged versions of USDS exist on other networks through Sky's own bridges, such as SkyLink for Solana and native bridges for Base, Arbitrum and Optimism ¹⁶.

A stablecoin's peg is a target, not a guarantee. See stablecoin depeg for how pegs fail.

USDS holders can deposit into the Sky Savings Rate (SSR). In return they get sUSDS, a token whose USDS value grows as interest accrues ⁴. There is no deposit or withdrawal fee, and Sky's docs say fees cannot be added later ⁴. You can withdraw at any time by converting sUSDS back to USDS.

The rate is variable. SKY holders set it through governance. Skybase International's risk disclosure says it can change at any time or drop to zero ²⁰. The older Dai Savings Rate still exists for DAI ¹³.

stUSDS is a riskier product. Depositors lend USDS to people borrowing against SKY, in exchange for a potentially higher rate ⁵. If liquidations of that SKY collateral fall short, stUSDS holders absorb the loss first. Their exposure follows the SKY price closely ²⁰.

Sky's lending side is the system once called Maker Vaults. A borrower locks approved collateral and mints stablecoins against it, up to a limit set by governance ¹³¹⁵. The debt grows with the stability fee ¹³. To get the collateral back, the borrower repays the debt plus fees.

If a vault's collateral value falls below the required ratio, it is liquidated. The protocol takes over the collateral and debt and sells the collateral in a Dutch auction. That auction starts high and lowers its price over time until someone buys ¹². Liquidations are automatic and can include penalties ²⁰.

SKY holders also have a dedicated Staking Engine. They can lock SKY to borrow USDS, stake it for rewards, and delegate its votes, all from one position ¹⁰. These positions cannot be transferred to another address ¹⁰.

Separately, the sky.money app lists Sky Vaults built on the Morpho lending protocol. They are not core protocol vaults. Skybase International curates them, choosing which markets they lend into and setting exposure limits. It says it charges no fee on them at present ¹⁹. Depositors can get back less than they put in ²⁰.

SKY holders run the protocol by voting. The Chief contract counts votes for proposals. The Pause contract enforces a waiting period. Approved changes are executed through one-time "spell" contracts ¹⁴¹⁵. For background on how this kind of governance works, see what is a DAO.

Some safeguards can act faster than a full vote:

• Price delay. Collateral prices go through a one-hour delay. The oracle provider, Chronicle, can freeze a suspicious queued price ¹⁵.
• Instant access modules. Some parameters can change without the usual delay, within preset limits. One example is the AutoLine for debt ceilings ¹⁵.

The old Emergency Shutdown Module, which let MKR holders force a protocol wind-down, is now deprecated ¹⁷.

The protocol is public smart-contract code. Anyone can use it through other websites or directly on-chain ¹⁹. The sky.money site and app are run by Skybase International, which calls itself "an independent Sky Agent." It says it does not hold user funds, does not control the protocol, and does not guarantee yields ¹⁸. Its Terms of Use (version 2.0, September 1, 2026) are governed by Cayman Islands law and include binding arbitration ¹⁹.

Those terms prohibit users resident in a list of jurisdictions. The list includes the United Kingdom, Russia, Belarus, China, Hong Kong, Iran, North Korea, Venezuela and Russian-occupied regions of Ukraine. It also bans VPNs used to get around restrictions ¹⁹. Users in some other jurisdictions see a limited version of the app ¹⁹. In 2024, Sky said its token rewards and savings rate would not be offered through the app in the US or UK ¹. These restrictions apply to the website, not to the protocol's contracts ¹⁹.

• Smart contracts and upgrades. USDS and sUSDS are upgradeable, and governance can change protocol parameters ³⁴¹⁴.
• Collateral and USDC dependence. Much of the peg support comes from the LitePSM's USDC ¹¹. Problems with USDC would affect it.
• Liquidation. Borrowers can lose collateral quickly in sharp price drops ¹²²⁰.
• First-loss products. stUSDS absorbs bad debt before other users ²⁰.
• Variable yields. The Savings Rate and rewards can fall to zero ²⁰.
• Phishing. Fake Sky sites and fake "upgrade" pages target MKR holders. Check transactions in your wallet before signing ²⁰.