Sky community mulls final proposal to replace MKR with SKY as sole governance token, enabling staking and USDS rewards

Sky's core governance design team, Atlas Axis, submitted a proposal Wednesday that, if approved, would complete the protocol's upgrade from MKR to SKY. This shift would make SKY the exclusive governance token and enable staking, unlocking USDS rewards for SKY holders.

Sky co-founder Rune Christensen hailed the proposal as a "huge milestone" in a forum post .

"I fully support the proposal from Atlas Axis to finalize the upgrade from MKR to SKY, and it is great to see them taking the lead on proposing larger scale upgrades to the system like this," he said. "Getting past the full upgrade of MKR to SKY is one of the last pieces missing before Sky can transition to zero fixed costs at the end of 2025, which will ensure an even greater portion of the income the protocol generates goes to the benefit of SKY buybacks, or SKY staking rewards."

Formerly known as Maker, the protocol underwent a significant rebranding as part of its " Endgame " strategy, transitioning to Sky in 2024. That introduced new features, including the launch of decentralized stablecoin USDS, a new version of DAI, with a supply now exceeding $7.5 billion , and SKY to replace the MKR governance token.

While USDS and SKY were introduced as upgraded tokens, DAI and MKR remain in circulation, and users have had the option to convert their holdings to the new tokens, allowing for a gradual transition process.

End of an era

If approved, the proposal could be activated within a matter of weeks, making SKY the technical and functional evolution of MKR, with SKY inheriting the governance voting rights previously held by MKR, the Sky team told The Block via email. 

Existing MKR holders can upgrade to SKY at a fixed rate of 1 MKR:24,000 SKY. Like MKR, SKY allows holders to vote on Sky ecosystem governance proposals or delegate their votes.

SKY staking would also be enabled, providing holders with sustainable and permanently active USDS rewards based on the income the Sky protocol generates, Christensen explained — accessible via frontends such as Sky.money.

To encourage timely migration, conversions from MKR to SKY starting Sept. 18 will incur a 1% penalty, increasing by 1% every three months thereafter. These penalties, transparently managed by governance, aim to reward early adopters and support long-term stability.

Initially, SKY-backed staking vaults will temporarily disable liquidations to maintain stability. Full functionality will resume as liquidity improves and governance adjusts risk parameters.

Governance authority will migrate to a new contract controlled exclusively by SKY voting, permanently disabling the ability to downgrade from SKY back to MKR. This transition is slated to occur between May 15 and May 19, pending an onchain vote.

"Overall, I think this is a very competent and thoughtful solution to ensure the full upgrade of MKR to SKY, maximizing the chance that exchange liquidity will migrate smoothly while providing the crucial SKY staking feature to SKY holders and MKR holders that will be upgrading," Christensen said.