S&P Rates Sky Protocol B- Citing Centralization and Capital Risks

S&P Global Ratings has assigned a B- credit rating to Sky Protocol, formerly known as Maker Protocol, marking the first time a major credit rating agency has evaluated a decentralized finance (DeFi) platform [1]. This action is part of S&P’s broader initiative, launched in 2023, to assess stablecoin issuers and their capacity to maintain a stable peg to fiat currencies [1]. The rating applies to Sky Protocol’s USDS and DAI stablecoins, as well as its sUSDS and sDAI savings tokens [1].

According to S&P, the B- rating indicates that Sky Protocol can meet its financial obligations under normal conditions but remains vulnerable in the face of adverse business, financial, or economic scenarios [1]. The agency flagged several risks, including high depositor concentration, centralized governance, reliance on founder Rune Christensen, regulatory uncertainty, and limited capitalization. At the time of the rating, Sky Protocol’s risk-adjusted capital ratio stood at just 0.4% [1]. S&P also noted that governance remains highly centralized, with Christensen holding nearly 9% of governance tokens and low voter participation [1].

S&P rated USDS as a “4” on its stability scale, a score described as “constrained,” reflecting its ability to maintain a dollar peg [1]. As of the latest available data, USDS is the fourth-largest stablecoin by market capitalization, with $5.36 billion in circulation [1]. S&P defined a default in this context as a “haircut imposed on token holders,” potentially triggered by mass withdrawals or credit losses exceeding capital reserves [1].

Andrew O’Neil, S&P’s digital assets analytical lead, highlighted that the rating reflects a balance between Sky Protocol’s operational functionality and the structural weaknesses it currently faces [1]. The agency also noted that the DeFi ecosystem introduces unique risks, such as smart contract vulnerabilities, oracle dependencies, bridge security, and governance issues, which require ongoing monitoring and mitigation [1].

The rating also reduced Sky Protocol’s anchor score to “bb,” placing it four notches below the U.S. banking anchor of “bbb+,” due to broader regulatory uncertainties affecting the DeFi space [1]. In a broader assessment, S&P ranked Circle’s USDC at 2 (strong), Tether’s USDT at 4 (constrained), and USDS also at 4, noting that USDS faces complexity in its asset base and weaker capital reserves compared to USDC [1].

This marks S&P’s first-ever credit rating for a stablecoin system, signaling an increasing recognition of DeFi’s role in the global financial landscape [1]. Sky Protocol, a decentralized lending platform, facilitates crypto-backed loans and relies on USDS to support its lending and borrowing activity [1]. The assessment also provided the agency with an opportunity to re-examine traditional counterparty risk models and adapt them to DeFi-specific challenges [1].

As stablecoin regulation accelerates globally, S&P’s actions highlight the evolving role of credit rating agencies in assessing the creditworthiness of digital assets. This move is expected to influence investor perception and regulatory scrutiny of DeFi protocols moving forward [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/)