S&P Global Ratings Assigns First-Ever Rating to DeFi Protocol

The Sky protocol, formerly known as Maker, received a B- credit rating from S&P Global Ratings. This marks the first assessment of a DeFi platform by a traditional rating agency.

Analysts also examined the stablecoin USDS and the savings tokens sUSDS and sDAI. The ability of USDS to maintain its peg to the US dollar was rated four out of five — the higher the number, the poorer the performance.

Sky Protocol is a decentralized lending platform. It allows users to take out loans backed by cryptocurrency. Its stablecoin USDS ranks fourth in market capitalization within the segment, with a figure of $7.9 billion.

Key Risks

S&P highlighted the protocol’s weaknesses, including deposit concentration, centralized governance, founder dependency, regulatory uncertainty, and weak capitalization.

According to the agency, co-founder Rune Christensen holds nearly 9% of the governance tokens. Decision-making remains centralized due to low voter turnout.

Capitalization is another issue. The risk-adjusted capital ratio stands at 0.4%, indicating a limited reserve to cover potential credit losses.

Comments from Stakeholders

S&P representative Andrew O’Neil explained the significance of the rating. According to him, a B- indicates that the protocol can meet financial obligations but is vulnerable under adverse economic conditions.

The Sky team stated that the evaluation process allowed them to explore both traditional and DeFi-specific risks, including vulnerabilities in smart contracts, oracles, bridges, and governance.

In March 2024, S&P Global Ratings released its ninth “stability rating” for stablecoins.