Sky Protocol Overhauls Governance with MKR to SKY Transition, Boosting Staking and Rewards

Sky Protocol has approved the transition from MKR to SKY, solidifying governance and staking. MKR is replaced by SKY, improving efficiency and governance. The USDS supply has exceeded $7.5 billion, indicating significant adoption. This transition strengthens Sky's positioning in the decentralized finance landscape and positions the protocol for sustainable long-term growth and value retention.

Sky Protocol, a decentralized finance (DeFi) lending protocol, has taken a significant step forward with the approval of its transition from Maker’s MKR token to its own SKY token as the sole governance asset. This move marks a pivotal shift in the platform’s governance structure and is expected to enhance efficiency and governance within the protocol.

The proposal, introduced on May 1 and approved by the Sky decentralized autonomous organization (DAO) forum, aims to replace MKR with SKY as the governance token. This transition also introduces a long-awaited feature: staking for SKY holders. The transition is scheduled to occur between May 15 and May 19, with users no longer able to downgrade from SKY back to MKR, signaling a full commitment to the new governance structure [1].

Rune Christensen, co-founder of Sky, hailed the proposal as a “huge milestone.” He noted that the ability to revert from SKY to MKR has discouraged major exchanges from listing the token due to liquidity fragmentation concerns. With this change, Christensen expects exchanges to adopt SKY more quickly [1].

To encourage the transition, the proposal introduces a delayed upgrade penalty for MKR holders who are slow to migrate to SKY. Starting September 18, a 1% penalty will apply, increasing every three months. Users affected by the penalty will receive fewer SKY tokens in exchange [1].

One of the core enhancements included in the proposal is the introduction of staking rewards tied to Sky’s decentralized stablecoin, USDS. These rewards will be distributed based on the income generated by the protocol, with an initial payout expected two to three weeks after the upgrade. According to Christensen, a 50% revenue splitter rate will apply. This move is one of the final steps toward eliminating fixed costs by the end of 2025, enabling a larger share of income to support SKY buybacks and staking rewards [1].

To prevent potential price manipulation during the early stages of the transition, SKY liquidations will be temporarily disabled. Once market liquidity stabilizes, the DAO plans to lift the freeze and adjust risk parameters to their long-term targets [1].

Sky, which rebranded from Maker in August 2024, faced early backlash over the change. However, a community vote in November confirmed support for the new brand, with 79% favoring the continued use of the Sky name. The rebrand is part of Maker’s “Endgame” upgrade, which introduced USDS as a successor to the DAI stablecoin and SKY as a replacement for the MKR governance token. The goal is to enhance the decentralization and sustainability of Maker’s governance mechanisms [1].

The USDS supply has exceeded $7.5 billion, indicating significant adoption and growth within the Sky ecosystem. This transition strengthens Sky’s positioning in the decentralized finance landscape and positions the protocol for sustainable long-term growth and value retention.

References:
[1] https://cryptonews.com/news/sky-proposes-new-token-and-staking-upgrade-in-final-move-away-from-maker/