S&P Assigns First B- Credit Rating to DeFi Platform Sky Protocol

S&P Global Ratings has assigned the first-ever "B-" credit rating to Sky Protocol, a decentralized finance (DeFi) platform, marking a significant milestone in the convergence of traditional finance and decentralized protocols [1]. This rating, which assesses Sky Protocol's ability to maintain its stablecoins such as USDS and DAI in line with the U.S. dollar, is part of S&P’s broader initiative launched in 2023 to evaluate the stability of stablecoin issuers [1]. The "B-” rating indicates that while Sky Protocol can meet its obligations under current conditions, it could struggle under adverse financial scenarios [1].

According to the rating agency, USDS—the primary stablecoin issued by Sky Protocol—was given a stability rating of "4," which is described as "constrained." This places it below other major stablecoins like USDC, which received a "2" rating (strong) from S&P [1]. USDS has a current market capitalization of $5.36 billion and is used primarily for borrowing and lending activities on the Sky Protocol platform [1].

The rating decision was influenced by several risk factors, including governance centralization, where co-founder Rune Christensen controls nearly 9% of the platform’s voting power [1]. Additionally, S&P noted a low capital buffer, with Sky maintaining a capital ratio of just 0.4% as of July 27, and highlighted the regulatory uncertainty surrounding DeFi operations [1].

Despite these risks, Sky Protocol has demonstrated steady earnings and limited losses since 2020 [1]. Andrew O’Neil, S&P’s digital assets analytical lead, emphasized that the "B-" rating reflects the balance between the platform’s operational functionality and its structural vulnerabilities [1]. The agency also noted that DeFi introduces unique challenges, including smart contract risks and governance issues, which require continuous monitoring [1].

S&P further assigned an anchor rating of "bb" to Sky Protocol, placing it below the typical "bbb+" anchor rating of U.S. banks [1]. This reflects the elevated risk profile of DeFi platforms compared to traditional financial institutions. The evaluation is seen as a precedent for integrating traditional credit risk models with the decentralized financial ecosystem [1].

This development is expected to influence investor sentiment and regulatory scrutiny of DeFi protocols, particularly as the global push for stablecoin regulation gains momentum [1]. Sky Protocol, which enables users to borrow against cryptocurrency collateral using USDS, now holds the distinction of being the first DeFi platform to receive a credit rating from a major rating agency [1].

Source:

[1] S&P Global Assigns First-Ever B- Credit Rating to DeFi Platform Sky Protocol (https://cryptonews.com/news/sp-global-assigns-first-ever-b-credit-rating-to-defi-platform-sky-protocol/)