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

Sky Protocol, a decentralized lending platform, has come under scrutiny from S&P Global Ratings, marking its first-ever credit rating for a DeFi protocol. The agency assigned a B- credit rating to Sky Protocol, indicating that while the platform can meet its financial obligations under normal conditions, it remains at risk during adverse scenarios due to governance centralization, weak capital reserves, and regulatory uncertainty [1]. This evaluation applies to Sky’s stablecoins, USDS and DAI, as well as its savings tokens, sUSDS and sDAI [1].

According to the report, Sky Protocol’s risk-adjusted capital ratio stands at just 0.4%, significantly limiting its ability to absorb losses under stress [1]. S&P highlighted several structural concerns, including high depositor concentration, reliance on founder Rune Christensen, and limited capitalization. Christensen holds nearly 9% of governance tokens, and voter participation remains low, further centralizing control [1]. The agency also noted that the protocol’s governance model, outlined in the Endgame/SegUI roadmap, is still evolving and does not currently offer a path to meaningful decentralization [1].

The stability rating for USDS was set at “4,” described as “constrained,” indicating its capacity to maintain a dollar peg is limited under stress [1]. At the time of the report, USDS had $5.36 billion in circulation and ranked as the fourth-largest stablecoin by market capitalization [1]. S&P defined a default in this context as a “haircut imposed on token holders,” which could occur if mass withdrawals or credit losses exceed capital reserves [1].

Andrew O’Neil, S&P’s digital assets analytical lead, emphasized that the rating reflects a balance between Sky Protocol’s operational functionality and its structural weaknesses [1]. The agency also pointed to ongoing DeFi-specific risks, such as smart contract vulnerabilities, oracle dependencies, bridge security, and governance challenges, all of which require continuous monitoring and mitigation [1].

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

This rating is the first of its kind and signals a growing recognition of DeFi protocols in the global financial system [1]. As stablecoin regulation continues to evolve, S&P’s evaluation is expected to shape investor perception and regulatory scrutiny of DeFi platforms in the coming months [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/)