S&P Global Ratings has assigned a B- issuer credit standing to Sky Protocol, previously referred to as Maker Protocol, marking the primary time a significant credit standing company has issued a score for a decentralized finance (DeFi) platform.
The score is a part of S&P’s ongoing evaluation of stablecoin issuers, which started in 2023 to guage their skill to keep up a secure worth relative to fiat currencies. The evaluate covers the creditworthiness of Sky’s liabilities, the USDS (USDS) and DAI (DAI) stablecoins and the sUSDS and sDAI financial savings tokens.
Sky Protocol, evaluated for the primary time, obtained a “4” — labeled “constrained” — for USDS’s skill to keep up its peg to the US greenback. The scale runs from “1” for very robust to “5” for weak.
The Sky Protocol is a decentralized lending platform that allows customers to borrow cryptocurrency-backed loans. Its USDS stablecoin, used to facilitate lending and borrowing transactions, is the fourth-largest by market cap, with roughly $5.36 billion on the time of writing, in accordance to CoinMarketCap.
S&P defines a default on the protocol’s liabilities as “a haircut imposed on token holders.” It highlights key dangers that would set off such a default, together with depositor withdrawals exceeding the liquidity obtainable within the peg stability module and credit score losses surpassing the obtainable capital.
Government, capitalization and regulatory danger are principal issues
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The S&P score pointed to weaknesses within the protocol, together with excessive depositor focus, centralized governance, reliance on the founder, regulatory uncertainty and weak capitalization. These dangers are partly offset by the protocol’s minimal credit score losses and earnings since 2020.
Andrew O’Neil, S&P Global’s digital property analytical lead, instructed Cointelegraph, “A ‘B-‘ score signifies that we imagine the protocol at the moment can meet its monetary obligations, however it might be weak in hostile enterprise, monetary and financial circumstances.”
The Sky Ecosystem Asset-Liability Committee mentioned the method gave it an opportunity to look at each conventional counterparty dangers and DeFi-specific vulnerabilities akin to sensible contract, oracle, bridge and governance dangers.
“As a part of the interviews and documentation we shared with S&P, we had the chance to revisit and problem among the analytical assumptions behind counterparty dangers which can be typical of TradFi however don’t essentially apply on‑chain, and we additionally examined novel, DeFi‑native, dangers – sensible‑contract, oracle, bridge and governance dangers – that should be monitored and mitigated fastidiously,” they instructed Cointelegraph.
Sky co-founder Rune Christensen holds almost 9% of governance tokens. S&P’s evaluation said that “the protocol’s governance course of stays extremely centralized as a consequence of low voter turnout throughout key selections.”
Sky’s capitalization is one other major concern. According to the evaluation, with a risk-adjusted capital ratio of 0.4% as of July 27, the protocol has a restricted surplus reserve buffer to cowl potential credit score losses.
S&P’s evaluation additionally lowered the protocol’s anchor score to “bb,” 4 notches under the US financial institution anchor of “bbb+,” citing regulatory uncertainty within the DeFi sector.
Stablecoin issuers below elevated scrutiny
As cryptocurrency continues to deepen its engagement with conventional monetary markets, extra establishments throughout the crypto area are being introduced into the formal credit standing system.
S&P Global launched its stablecoin stability evaluation in December 2023. As per the report, Circle USDC (USDC) obtained a score of two (robust), whereas Tether (USDT) and USDS ranked 4 (constrained).
“Tether’s weaknesses are extra round transparency, whereas USDS has a extra advanced asset base in comparison with USDC. And certainly, the comparatively weak capital place can be one thing that drives that relative rating,” O’Neil mentioned.
The first blockchain-based mortgage securitization to obtain a score from S&P Global was Figure Technology Solutions, a expertise platform that powers a blockchain-based market for monetary merchandise. In June, Figure’s newest securitization of mortgage property, totaling $355 million, was awarded an “AAA” score by S&P Global.
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