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

S&P Global Ratings has issued a ‘B-’ issuer credit rating to Sky Protocol, marking the first time a major credit rating agency has extended a rating to a decentralized finance (DeFi) platform [1]. The rating, part of S&P’s broader assessment of stablecoin issuers launched in 2023, evaluates the creditworthiness of Sky Protocol’s liabilities, including its stablecoins USDS and DAI, as well as the sUSDS and sDAI savings tokens [1].

Sky Protocol, a decentralized lending platform enabling users to obtain cryptocurrency-backed loans, has its USDS stablecoin ranked as the fourth-largest by market capitalization, with a value of approximately $5.36 billion at the time of assessment [1]. According to S&P, a default in this context is defined as a “haircut imposed on token holders,” triggered by risks such as excessive depositor withdrawals or credit losses exceeding available capital [1].

The rating highlights several structural weaknesses, including high depositor concentration, centralized governance, reliance on the founder, regulatory uncertainty, and weak capitalization. Although the protocol has shown minimal credit losses and earnings since 2020, these benefits are offset by the identified vulnerabilities [1]. Rune Christensen, co-founder of Sky Protocol, controls nearly 9% of governance tokens, and the low voter turnout during key decisions has raised concerns about the centralization of the governance process [1].

Andrew O’Neil, S&P Global’s digital assets analytical lead, explained that a ‘B-’ rating indicates that Sky Protocol can currently meet its financial obligations but remains vulnerable under adverse conditions [1]. S&P also downgraded the protocol’s anchor rating to “bb,” four notches below the US bank anchor of “bbb+,” due to the regulatory uncertainty surrounding DeFi platforms [1].

The assessment also evaluated the stability of USDS, which received a rating of “4” on a scale from 1 (very strong) to 5 (weak), labeled as “constrained” in terms of its ability to maintain a stable peg to the US dollar [1]. S&P’s report noted that while USDS has a more complex asset base than USDC, the stablecoin from Circle, Tether’s (USDT) main concern lies in transparency [1].

The Sky Ecosystem Asset-Liability Committee emphasized that the rating process provided an opportunity to examine both traditional and DeFi-specific risks, including smart contract, oracle, bridge, and governance vulnerabilities [1]. This review process helps traditional credit rating methodologies adapt to the evolving nature of on-chain finance.

As the DeFi ecosystem continues to expand and integrate with traditional financial markets, more crypto-native institutions are being evaluated within the formal credit rating system. S&P’s stablecoin stability assessment is part of a growing trend to bring blockchain-based financial instruments into mainstream financial oversight [1].

Source: [1] S&P Global assigns ‘B-’ credit rating to Sky Protocol, first for DeFi protocol (https://cointelegraph.com/news/sp-global-b-minus-rating-sky-protocol-defi)