Sky: The Cryptocurrency for Web 3.0

What is Sky

Friend, imagine the money we use every day, like the US dollar, is issued by banks or governments—it's centralized. In the blockchain world, we want a “digital dollar” that doesn’t rely on any central authority. The Sky project is the latest practitioner of this vision; you can think of it as a combination of a decentralized “digital printing press” and “bank”. It was formerly known as MakerDAO, and in 2024, it underwent a brand upgrade to become Sky, introducing the new stablecoin USDS and governance token SKY.

Simply put, the core goal of the Sky protocol is to let you obtain a dollar-like stable digital currency (USDS) without selling your crypto assets (like Ethereum), and this process is fully managed by smart contracts—no intermediaries involved.

Target Users & Core Scenarios:

• Users who need stablecoins: Anyone looking to avoid volatility in the crypto market or needing a stable store of value can use USDS.
• Crypto asset holders needing liquidity: If you hold crypto assets like Ethereum but don’t want to sell them, you can collateralize these assets in the Sky protocol to generate USDS for liquidity—just like taking out a mortgage loan with your house.
• DeFi participants: As a decentralized stablecoin, USDS is widely used as a base asset for trading, lending, and yield farming in various decentralized finance (DeFi) applications.

Typical Usage Flow:

Imagine you have some Ethereum (ETH), you believe it will appreciate in the future, but you urgently need cash now. You don’t want to sell your ETH because you might miss out on future gains. This is where the Sky protocol can help:

1. Collateralize assets: You deposit your ETH into a Sky protocol smart contract, which acts as a digital safe.
2. Generate USDS: Based on the value of your collateralized ETH, Sky protocol generates a certain amount of USDS for you. For example, if you collateralize $150 worth of ETH, Sky may allow you to generate $100 USDS. This ratio (150%) ensures the stability and safety of USDS, preventing under-collateralization due to ETH price drops.
3. Use USDS: You can use these USDS for spending, investing, or anything else, while your ETH remains in the smart contract, waiting for you to redeem.
4. Repayment & Redemption: When you want to redeem your ETH, you simply repay the previously generated USDS and pay a small “stability fee” (like loan interest), and your ETH returns to your wallet.

Project Vision & Value Proposition

The vision of the Sky project is to build a more scalable, user-friendly, and community-governed decentralized finance (DeFi) ecosystem.

Core Problems to Solve:

• Centralization risk of stablecoins: Many stablecoins are issued by centralized institutions, with issues like lack of transparency and censorship risk. Sky issues USDS in a decentralized way, aiming to provide a more censorship-resistant and transparent stablecoin.
• Complexity & high cost of DeFi: The previous MakerDAO protocol could be complex for ordinary users in terms of governance and usage. Sky introduces new tokens and a modular ecosystem (Sky Stars) to simplify governance processes, and uses technologies like SkyLink to lower transaction fees and increase speed, making DeFi more accessible.
• Liquidity issues for crypto assets: Many people hold crypto assets but need fiat liquidity. Sky provides a way to obtain stablecoin liquidity without selling assets.

Differences from Similar Projects:

Sky is an upgraded version of MakerDAO, one of the most influential projects in DeFi, whose DAI stablecoin was among the first widely adopted decentralized stablecoins.

• Brand upgrade & token optimization: Sky upgrades DAI to USDS and MKR to SKY, aiming to provide more optimized stablecoin and governance tokens for long-term development.
• Modular ecosystem (Sky Stars): Sky introduces the concept of “Sky Stars”—independent decentralized projects focused on specific DeFi services, such as Spark and Grove. This makes the ecosystem more flexible and specialized, like a group of many independent small companies, each with its own expertise.
• Layer 2 scalability: With SkyLink technology, Sky protocol connects to multiple Layer 2 networks like Arbitrum, Base, and Optimism, greatly reducing transaction fees and increasing speed, solving Ethereum mainnet congestion and high gas fees, making DeFi operations affordable for regular users.
• Enhanced governance mechanism: SKY token holders participate in protocol decisions more clearly and efficiently through the “Sky Atlas” rule set, including adjustments to collateral types, stability fees, and other key parameters.

Technical Features

Sky protocol inherits the robust foundation of MakerDAO and innovates further to improve efficiency, reduce costs, and enhance user experience.

• Ethereum-based smart contracts: All core functions of Sky protocol run on smart contracts on the Ethereum blockchain. Smart contracts are like self-executing legal contracts—once conditions are met, they execute automatically, ensuring decentralization and transparency.
• Non-custodial control: This means users always have full control over their collateralized assets. Your assets aren’t held by any centralized institution, but are locked in smart contracts, and only you can manage them according to contract rules.
• SkyLink cross-chain bridging system: SkyLink is a major technical innovation of Sky protocol, acting as a bridge connecting different highways. It links Ethereum mainnet with multiple Layer 2 (L2) networks (like Arbitrum, Base, Optimism). The goal is to solve high fees and slow speeds on Ethereum mainnet. With SkyLink, users can transact, save, and operate USDS and SKY on L2 networks, enjoying lower fees and faster speeds.
• Collateralized Debt Position (CDP)/Vault: This is the core mechanism for generating USDS. Users deposit crypto assets (like ETH) into a CDP (now often called a “vault”), and can generate USDS based on the value of the collateral. This process is over-collateralized—the value of the collateral always exceeds the value of the generated USDS to handle market volatility.
• Staking Engine: This is a new mechanism replacing MakerDAO’s Seal Engine. SKY token holders can stake SKY to earn rewards, delegate voting rights, or borrow USDS, with no exit fees.

Tokenomics

Sky protocol operates mainly around two core tokens: USDS (stablecoin) and SKY (governance token). These are upgraded versions of MakerDAO’s original DAI and MKR tokens.

Basic Token Information:

• USDS:
  • Token symbol: USDS
  • Issuance chain: Mainly circulates on Ethereum and its Layer 2 networks.
  • Nature: A soft-pegged USD decentralized stablecoin, aiming to maintain 1:1 USD value.
  • Issuance mechanism: Generated by users over-collateralizing crypto assets (like ETH).
  • Inflation/Burn: USDS supply is dynamic, increasing or decreasing based on market demand and collateral generation/repayment. When users repay USDS and redeem collateral, USDS is burned.
• SKY:
  • Token symbol: SKY
  • Issuance chain: Mainly circulates on Ethereum and its Layer 2 networks.
  • Nature: Governance and utility token of Sky protocol, upgraded from MKR.
  • Total supply or issuance mechanism: Specific total supply and issuance mechanism are not detailed in current materials, but users can convert MKR to SKY (at a 1:24,000 ratio), and when the system faces under-collateralization, new SKY can be minted and sold to stabilize the system.

Token Utility:

• USDS:
  • Stable value storage: Used as a stable digital currency to avoid crypto market volatility.
  • DeFi applications: Used as a base asset in lending, trading, yield farming, and other DeFi protocols.
  • Sky Savings Rate (SSR): Users can deposit USDS into the SSR module to earn compound interest.
  • Sky Token Rewards (STRs): Users providing USDS can earn SKY token rewards to support ecosystem projects.
• SKY:
  • Governance: SKY token holders have governance rights over the Sky protocol, voting on parameters like stability fees, collateral types, and risk parameters, deciding the protocol’s future.
  • Staking: Users can stake SKY tokens to earn rewards and delegate voting rights.
  • Risk management: When the protocol faces under-collateralization risk, new SKY tokens can be minted and sold to cover deficits, maintaining USDS’s peg.

Token Distribution & Unlock Information:

Current materials do not detail the specific distribution and unlock schedule for SKY tokens. However, users can convert old MKR tokens to new SKY tokens, with a penalty mechanism for delayed conversion to encourage prompt upgrading.

Team, Governance & Funds

Sky project originated from MakerDAO, which was founded by Rune Christensen in 2015 to address crypto volatility by creating a decentralized stablecoin.

• Core member: Rune Christensen is the founder of MakerDAO (now Sky).
• Team characteristics: Sky protocol is managed by a decentralized autonomous organization (DAO), meaning decisions are made by SKY token holders through voting, not by a centralized team.
• Governance mechanism:
  • Decentralized Autonomous Organization (DAO): Sky is a DAO, with SKY token holders as decision-makers.
  • On-chain voting: Major protocol changes and parameter adjustments are conducted via on-chain voting, ensuring transparency and decentralization.
  • Sky Atlas: A unique, comprehensive rule set guiding the governance process of the Sky ecosystem, ensuring orderly proposals and upgrades.
  • Delegated voting: SKY holders can vote directly or delegate their voting rights to more professional representatives.
• Vaults & Funds: Sky protocol accumulates funds through stability fees, liquidation penalties, etc., for operations, development, and risk management. Currently, Sky protocol’s total value locked (TVL) exceeds $15 billion, showing strong financial strength and market trust.

Roadmap

Sky is the final result of MakerDAO’s “Endgame” plan, which aims to simplify MakerDAO governance and ensure long-term resilience.

Key historical milestones & events:

• 2015: Rune Christensen founded MakerDAO, aiming to create a decentralized stablecoin.
• Early days: Launched DAI stablecoin, one of the first widely adopted decentralized stablecoins.
• 2023: Christensen announced the “Endgame” plan to simplify MakerDAO governance and enhance long-term resilience.
• 2024: MakerDAO officially rebranded to Sky, introducing the new stablecoin USDS and governance token SKY as the climax of the “Endgame” plan.

Future plans & milestones:

While specific future roadmap details are not listed in the current materials, the development direction can be inferred as:

• Expansion of the Sky Stars ecosystem: Continued development and integration of more independent “Sky Stars” projects to provide richer DeFi services.
• Layer 2 integration & optimization: Further expand SkyLink’s support for more Layer 2 networks and optimize cross-chain experience for lower fees and faster transactions.
• Institutional-grade financial products: Committed to providing institutional-grade financial products through its modular ecosystem.
• Ongoing governance simplification & efficiency improvement: Continuously optimize governance processes through mechanisms like Sky Atlas to ensure decentralization and efficient protocol operation.

Common Risk Reminders

Investing in any blockchain project comes with risks, and Sky is no exception. Here are some common risk reminders:

• Technical & security risks:
  • Smart contract vulnerabilities: Although Sky protocol’s smart contracts are rigorously audited, any complex code may have unknown vulnerabilities. If exploited, it could lead to fund loss.
  • Oracle risk: Sky protocol relies on oracles for collateral asset price data. If oracles fail or are manipulated, it could cause USDS de-pegging or liquidation errors.
  • Layer 2 bridging risk: As a cross-chain bridging system, SkyLink’s security is critical. Bridge technology itself may have vulnerabilities, or security issues in L2 networks could affect Sky protocol.
• Economic risks:
  • Collateral price volatility: USDS stability depends on over-collateralization. If collateral assets (like ETH) drop sharply and faster than the protocol’s liquidation speed, it may cause bad debt and affect USDS’s peg.
  • Liquidation risk: If the value of collateralized assets falls below the liquidation threshold, collateral will be liquidated, possibly causing partial loss.
  • Stability fee rate volatility: Stability fee rates are governed and may fluctuate, affecting borrowing costs.
  • USDS de-pegging risk: Although USDS aims to be pegged to the dollar, in extreme market conditions—such as mass liquidations or market panic—USDS may temporarily de-peg from the dollar.
• Compliance & operational risks:
  • Regulatory uncertainty: Global regulation of cryptocurrencies and DeFi is evolving, and future policy changes may impact Sky protocol’s operation and development.
  • Governance risk: Although governance is decentralized, if governance tokens are too concentrated or voting participation is low, a minority may control the protocol or decision-making may be inefficient.
  • Market competition: The stablecoin and DeFi sectors are highly competitive; other innovative projects may challenge Sky’s market position.

Please remember, the above information is for reference only and does not constitute investment advice. Always do your own research (DYOR) before making any investment decisions.

Verification Checklist

To learn more about the Sky project, you can refer to the following information:

• Official website: sky.money
• Whitepaper: Find the “Whitepaper” link on the sky.money website.
• Block explorer contract addresses: Look up USDS and SKY token contract addresses on Ethereum mainnet and major Layer 2 networks to view token circulation, holder distribution, and transaction history on Etherscan and other block explorers.
• GitHub activity: Visit Sky or MakerDAO-related GitHub repositories to check code update frequency and developer community activity.
• Community forums/social media: Join Sky’s official forum, Discord, Twitter, and other communities to follow project updates and discussions.
• Audit reports: Look for third-party security audit reports of Sky protocol smart contracts to assess their security.

Project Summary

Sky is an important evolution in the decentralized finance (DeFi) space, originating from MakerDAO and inheriting its deep expertise in decentralized stablecoins. Through brand upgrades, token optimization, and technical innovation, it aims to address pain points in DeFi scalability, user experience, and governance efficiency.

It provides a trustless, permissionless system that allows users to generate stable digital dollars (USDS) by collateralizing crypto assets, while enabling community-driven governance via the SKY token. The introduction of Layer 2 solutions like SkyLink is expected to significantly lower the barriers and costs for users to participate in DeFi.

However, like all blockchain projects, Sky faces inherent risks such as smart contract security, market volatility, and regulatory uncertainty. For those interested in participating in the DeFi ecosystem—especially in stablecoins and decentralized governance—Sky offers a platform worth watching. But always remember, the crypto market is highly volatile and investing carries risks, so proceed with caution.

For more details, please conduct your own research and make decisions based on your own situation. This is absolutely not investment advice.