DeFi's First Credit Rating Exposes a Fragile Future

S&P Global Ratings has issued a B- (Stable Outlook) credit rating to Sky Protocol, formerly known as Maker Protocol, marking a historic milestone as the first time a decentralized finance (DeFi) protocol has received a formal credit rating from a major ratings agency. The rating reflects S&P's assessment of Sky's ability to maintain the stability of its stablecoins—USDS and sUSDS—while highlighting structural vulnerabilities that raise concerns about its capital adequacy and governance resilience.

The B- rating, typically assigned to speculative-grade entities, underscores the risks associated with Sky's current capital structure. According to analysis by DeFi Researcher Asher Aharonov, the protocol operates with a risk-adjusted capital (RAC) ratio of just 0.4%, far below the 8–10% considered adequate for traditional financial institutions. This thin buffer is exacerbated by a 14.4% capital requirement driven by the high-risk weighting of assets like USDe, a synthetic dollar, which accounts for over 75% of this requirement due to its 1,250% risk weight under the Basel framework. Meanwhile, Sky's liquidity remains robust, with $1 billion in tokenized money market funds and a strong cybersecurity infrastructure.

Governance weaknesses further compound the risk profile. Voter participation in Sky's decentralized autonomous organization (DAO) is low, concentrating power in the hands of founders and large token holders. This dynamic was recently exposed during a failed governance takeover in February 2025, when the founder was forced to collateralize his own tokens to defend the protocol. Such centralization risks contrast with the decentralized ethos of DeFi and create governance vulnerabilities that could undermine stability during periods of stress.

Regulatory uncertainty also looms large. Sky, as a decentralized stablecoin issuer, operates in a legal gray zone where jurisdictional boundaries are unclear. This ambiguity limits institutional participation and complicates efforts to establish a predictable compliance framework. The lack of clarity is particularly evident in the U.S., where the CLARITY Act seeks to define digital assets but remains stalled in the Senate. S&P's rating decision highlights how regulatory developments could shape the future of DeFi protocols, particularly in jurisdictions where compliance is a prerequisite for institutional engagement.

Despite these challenges, Sky holds a systemically important position in DeFi, with USDS being the fourth-largest stablecoin by market capitalization. The protocol's Peg Stability Module, which holds a significant portion of its reserves in USDC, and its exposure to institutional-grade tokenized assets offer a degree of resilience. However, the current capital structure and governance model leave it vulnerable to shocks that could trigger a loss of confidence or a run on liquidity.

Looking ahead, S&P's rating provides a roadmap for Sky to strengthen its credit profile. Immediate steps could include reducing exposure to high-risk assets like USDe and formalizing a surplus reserve policy that scales with risk-weighted liabilities. Over time, increasing the RAC ratio toward 2–3% and prioritizing retained earnings over token buybacks could signal a more sustainable capital strategy. Enhancing DAO participation through mechanisms like minimum holding periods for voting rights or incentivizing decentralization through the "Endgame" roadmap could also mitigate governance risks.

The S&P rating marks a pivotal moment in DeFi's journey toward mainstream acceptance. By applying its established credit framework to a decentralized protocol, S&P has created a precedent that could influence how other stablecoin issuers and DeFi platforms are evaluated. This shift reflects a broader trend of traditional finance engaging with DeFi, not as a disruptive force, but as a potential partner—albeit on terms that prioritize risk management and regulatory alignment. For institutional investors and regulators, the rating serves as a benchmark for assessing the viability of DeFi protocols in a rapidly evolving digital asset ecosystem.

Source: [1] S&P Flashes a Warning Light for DeFi (https://www.forbes.com/sites/tomerniv/2025/09/04/sp-flashes-a-warning-light-for-defi-inside-skys-credit-rating/)