S&P Assigns First DeFi Credit Rating as Sky Protocol Receives 'B-'

S&P Global Ratings has assigned a 'B-' credit rating to Sky Protocol, marking the first time a major credit rating agency has issued a rating for a decentralized finance (DeFi) platform [1]. The evaluation is part of S&P’s ongoing initiative, launched in 2023, to assess the creditworthiness of stablecoin issuers. The rating applies to the liabilities of Sky Protocol, specifically its USDS and DAI stablecoins, as well as the sUSDS and sDAI savings tokens.

Sky Protocol, a decentralized lending platform, enables users to take out crypto-backed loans and uses its USDS stablecoin to facilitate these transactions. As of the time of the rating, USDS had a market capitalization of approximately $5.36 billion [1]. The rating agency assigned a "4" to the platform’s ability to maintain its peg to the U.S. dollar, with "4" indicating a "constrained" outlook and "1" representing the strongest performance.

S&P has defined a default for the protocol as a "haircut imposed on token holders" and identified several potential triggers, including liquidity shortages in the peg stability module and credit losses exceeding available capital. The agency highlighted key risks, including high depositor concentration, centralized governance, reliance on the founder, regulatory uncertainty, and weak capitalization [1]. These risks are partially offset by minimal credit losses and earnings recorded by the protocol since 2020.

Andrew O’Neil, S&P Global’s digital assets analytical lead, noted that the "B-" rating suggests the protocol can meet its obligations under current conditions but remains vulnerable to adverse financial and economic changes [1]. The Sky Ecosystem Asset-Liability Committee emphasized that the evaluation provided an opportunity to address both traditional and DeFi-specific risks, such as smart contract, oracle, and governance vulnerabilities.

Rune Christensen, co-founder of Sky Protocol, holds nearly 9% of the governance tokens, and S&P’s assessment noted that the governance process remains centralized due to low voter participation during critical decisions [1]. Additionally, the protocol’s capitalization is a concern, as its risk-adjusted capital ratio stood at 0.4% as of July 27, indicating limited buffer capacity to absorb potential credit losses [1].

S&P also downgraded the protocol’s anchor rating to "bb," four notches below the U.S. bank anchor of "bbb+," reflecting the regulatory uncertainty surrounding DeFi [1]. Meanwhile, other stablecoins, including Circle’s USDC and Tether’s USDT, were also evaluated under the same framework. USDC received a rating of "2" (strong), while USDS and USDT were both given a "4" (constrained) rating.

The move by S&P Global underscores the growing intersection between DeFi and traditional credit rating systems. As the DeFi sector continues to evolve, the inclusion of these platforms in formal credit assessments may help increase transparency and investor confidence. The first blockchain-based mortgage securitization to receive a rating from S&P was Figure Technology Solutions, which received an "AAA" rating for a $355 million securitization of mortgage assets in June 2024 [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)