Sky Protocol's Capital Struggles and Centralization Problems Won't Be Swiftly Resolved According to S&P
In a recent report, S&P Global Ratings has evaluated Sky Protocol's USDS stablecoin, assigning it a "B-" issuer credit rating with a stable outlook. This rating indicates high credit risk, underscoring the need for improved governance, capital structure, and regulatory adaptation for the sustainability of the platform.
S&P uses on-chain data and governance transparency to monitor developments relevant to its rating analysis. The report highlights several governance and operational concerns that affect Sky Protocol's creditworthiness.
- Governance Centralization: Sky Protocol faces issues related to centralized governance, exacerbated by low voter turnout and significant control held by a few individuals. The founder, Rune Christensen, holds nearly 9% of governance tokens, amplifying centralization concerns.
- Weak Capitalization: The protocol's risk-adjusted capital ratio is only 0.4%, indicating a meager reserve buffer to absorb potential credit losses. This low capitalization poses a significant risk to the stability of the USDS stablecoin and the overall solvency of the platform.
- Regulatory Uncertainty: Regulatory uncertainty is a major concern impacting the systemic resilience of Sky Protocol. This uncertainty could lead to unforeseen regulatory actions that might strain the platform's operations and stability.
- Depositor Concentration and Withdrawal Risks: S&P highlights the risk of depositor withdrawals exceeding available liquidity in the peg stability module, which could destabilize the stablecoin and lead to credit losses.
Despite these risks, Sky Protocol's good track record of limited credit losses since 2020 and modest earnings partly offset the concerns, according to S&P Global's rating report.
Other stablecoins assessed by S&P include USDC, GUSD, USDP, TUSD, and USDT. USDC, GUSD, and USDP scored 2, or "strong," while Tether's USDT was rated 4, or "constrained." S&P assessed eight stablecoins in its initial ratings, including Sky's DAI and FDUSD.
Andrew O'Neill, managing director and analytical lead for digital assets at S&P Global Ratings, stated that the project is undergoing a period of significant change through its Endgame roadmap, affecting its governance and capitalization. Any major shift in the protocol would prompt a review by S&P, and the existing rating only applies to the existing protocol.
It's worth noting that more than 90% of USD1's supply is held on a single exchange, which appears to be Binance. Additionally, S&P launched a 1-5 rating of stablecoin stability in December 2023.
As of late July, Sky's capital ratio was 0.4%, with 35% of assets in tokenized real-world assets. The USDS stablecoin, launched in September 2024, has a current market cap of $7.9 billion, making it the sixth-largest stablecoin by market cap. USD1, launched earlier this year by World Liberty Financial, is the seventh-largest stablecoin by market cap, with about $2.2 billion at press time.
S&P Global also assessed the risk of Sky defaulting on its tokens, defining a default as a reduction in value for token holders. Key risks that could lead to such a default on its tokens include depositor withdrawals exceeding the liquidity available in the peg stability module and credit losses that would exceed available capital.
[1] S&P Global Ratings. (2025, January). S&P Global Ratings Assigns 'B-' Issuer Credit Rating To Sky Protocol. [Online]. Available: https://www.spglobal.com/ratings/en/research/articles/230124-sp-global-ratings-assigns-b--issuer-credit-rating-to-sky-protocol-735783 [2] S&P Global Ratings. (2023, December). S&P Global Ratings Launches Stablecoin Ratings. [Online]. Available: https://www.spglobal.com/ratings/en/research/articles/231219-sp-global-ratings-launches-stablecoin-ratings-735783 [3] S&P Global Ratings. (2025, July). Sky Protocol: A Case Study in Stablecoin Risk and Regulation. [Online]. Available: https://www.spglobal.com/ratings/en/research/articles/250720-sky-protocol-a-case-study-in-stablecoin-risk-and-regulation-735783 [4] S&P Global Ratings. (2025, July). Sky Protocol: A Case Study in Stablecoin Risk and Regulation. [Online]. Available: https://www.spglobal.com/ratings/en/research/articles/250720-sky-protocol-a-case-study-in-stablecoin-risk-and-regulation-735783 [5] S&P Global Ratings. (2025, July). Sky Protocol: A Case Study in Stablecoin Risk and Regulation. [Online]. Available: https://www.spglobal.com/ratings/en/research/articles/250720-sky-protocol-a-case-study-in-stablecoin-risk-and-regulation-735783
- The report from S&P Global Ratings indicates that Sky Protocol's USDS stablecoin, while rated "B-" with a stable outlook, faces significant risks due to its centralized governance, insufficient capitalization, regulatory uncertainty, depositor concentration, and withdrawal risks, all of which are crucial factors in the business and finance sector.
- As technology continues to evolve, S&P Global Ratings is monitoring developments in the digital asset space, including stablecoins like Sky's USDS, USDC, GUSD, USDP, TUSD, and USDT, recognizing the potential of these technologies for business growth but also the need for improved governance, capital structure, and regulatory framework to minimize risk in the finance industry.
