S&P Global assigns ‘B-’ credit rating to Sky Protocol, first for DeFi protocol

S&P Global Ratings has assigned a B- issuer recognition standing to Sky Protocol, formerly known arsenic Maker Protocol, marking the archetypal clip a large recognition standing bureau has issued a standing for a decentralized concern (DeFi) platform.

The standing is portion of S&P’s ongoing appraisal of stablecoin issuers, which began successful 2023 to measure their quality to support a unchangeable worth comparative to fiat currencies. The reappraisal covers the creditworthiness of Sky’s liabilities, the USDS (USDS) and DAI (DAI) stablecoins and the sUSDS and sDAI savings tokens. 

Sky Protocol, evaluated for the archetypal time, received a “4” — labeled “constrained” — for USDS’s quality to support its peg to the US dollar. The standard runs from “1” for precise beardown to “5” for weak.

The Sky Protocol is simply a decentralized lending level that enables users to get cryptocurrency-backed loans. Its USDS stablecoin, utilized to facilitate lending and borrowing transactions, is the fourth-largest by marketplace cap, with astir $5.36 cardinal astatine the clip of writing, according to CoinMarketCap.

S&P defines a default connected the protocol’s liabilities arsenic “a haircut imposed connected token holders.” It highlights cardinal risks that could trigger specified a default, including depositor withdrawals exceeding the liquidity disposable successful the peg stableness module and recognition losses surpassing the disposable capital.

Government, capitalization and regulatory hazard are main concerns

Related: Sky doubles down connected token overhaul: Making MKR unusable, launching subDAOs

The S&P standing pointed to weaknesses successful the protocol, including precocious depositor concentration, centralized governance, reliance connected the founder, regulatory uncertainty and anemic capitalization. These risks are partially offset by the protocol’s minimal recognition losses and net since 2020.

Andrew O’Neil, S&P Global’s integer assets analytical lead, told Cointelegraph, “A ‘B-‘ standing means that we judge the protocol presently tin conscionable its fiscal obligations, but it would beryllium susceptible successful adverse business, fiscal and economical conditions.”

The Sky Ecosystem Asset-Liability Committee said the process gave it a accidental to analyse some accepted counterparty risks and DeFi-specific vulnerabilities specified arsenic astute contract, oracle, span and governance risks.

“As portion of the interviews and documentation we shared with S&P, we had the accidental to revisit and situation immoderate of the analytical assumptions down counterparty risks that are emblematic of TradFi but don’t needfully use on‑chain, and we besides examined novel, DeFi‑native, risks - smart‑contract, oracle, span and governance risks - that indispensable beryllium monitored and mitigated carefully,” they told Cointelegraph.

Sky co-founder Rune Christensen holds astir 9% of governance tokens. S&P’s appraisal stated that “the protocol’s governance process remains highly centralized owed to debased elector turnout during cardinal decisions.”
Sky’s capitalization is different superior concern. According to the assessment, with a risk-adjusted superior ratio of 0.4% arsenic of July 27, the protocol has a constricted surplus reserve buffer to screen imaginable recognition losses.

Sky’s assets Source: S&P Global Ratings

S&P’s appraisal besides lowered the protocol’s anchor standing to “bb,” 4 notches beneath the US slope anchor of “bbb+,” citing regulatory uncertainty successful the DeFi sector.

Stablecoin issuers nether accrued scrutiny

As cryptocurrency continues to deepen its engagement with accepted fiscal markets, much institutions wrong the crypto abstraction are being brought into the ceremonial recognition standing system.

S&P Global launched its stablecoin stableness appraisal successful December 2023. As per the report, Circle USDC (USDC) received a standing of 2 (strong), portion Tether (USDT) and USDS ranked 4 (constrained). 

“Tether’s weaknesses are much astir transparency, whereas USDS has a much analyzable plus basal compared to USDC. And indeed, the comparatively anemic superior presumption is besides thing that drives that comparative ranking,” O’Neil said.

The archetypal blockchain-based owe securitization to person a standing from S&P Global was Figure Technology Solutions, a exertion level that powers a blockchain-based marketplace for fiscal products. In June, Figure’s latest securitization of owe assets, totaling $355 million, was awarded an “AAA” standing by S&P Global.

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