Introduction

Sky (formerly MakerDAO) maintains a dominant 72.2% market share within the collateralized debt position (CDP) category, anchored by $6.51B in TVL. This leadership position has been fundamentally reshaped by the "Endgame" transition, which shifted the protocol's primary revenue engine from crypto-native stability fees to Real-World Asset (RWA) yields, particularly tokenized U.S. Treasuries and money-market funds. While the protocol generates a substantial $410.4M in annualized fees, its retention of $149M in annualized revenue reflects a significant yield-sharing model with USDS holders through the Sky Savings Rate (SSR), which costs approximately $122M annually based on current utilization. Despite a 5.3% contraction in TVL over the last 30 days and an 8.16% decline in monthly revenue, Sky remains remarkably undervalued relative to its peers; its P/F ratio of 3.16 sits well below the CDP category average of 5.15 and is nearly 10x lower than competitors like Aave V3.

The protocol's structural evolution includes the introduction of the USDS stablecoin, which incorporates a governance-controlled "freeze" function to align with global regulatory and sanctions requirements, and a strategic pivot away from the immutable legacy of DAI. Operationally, Sky has transitioned to a leaner model, reporting a 61.5% reduction in operating expenses as it offloads specific business functions to "Sky Stars" (SubDAOs) like Spark, which currently holds over $140M in internal capitalization within the Sky Pause Proxy treasury. This multi-star architecture allows Sky to scale institutional-grade products and multi-chain expansion while maintaining a robust $168M annualized net profit. However, fragmented liquidity for the SKY token (currently ~$6.7M) and persistent metadata resolution issues remain secondary risks as the ecosystem consolidates its rebrand. Not financial advice, DYOR.

Comprehensive Analysis

The transition of Sky from its legacy as MakerDAO into a modular, multi-star financial engine represents one of the most significant structural pivots in DeFi history. By decoupling core governance from specialized business units, the protocol has optimized capital efficiency and revenue capture, even as the broader market grapples with shifting interest-rate environments. The current architecture relies on a sophisticated interplay between crypto-native over-collateralization and a massive, yield-bearing Real-World Asset (RWA) portfolio that now serves as the primary stabilizer for the USDS ecosystem.

The RWA Revenue Engine and Yield Dynamics

The protocol's economic quality is increasingly defined by its "Stability Fee" mix. While traditional crypto-native vaults (ETH, WBTC) provided the foundation for the original DAI model, the 2025 landscape shows a definitive shift toward institutional-grade reserves. Approximately 35% of the protocol's backing as of mid-2025 was concentrated in RWAs, primarily through regulated vehicles such as tokenized Treasuries and money-market funds. This shift is not merely a diversification strategy; it is a fundamental margin play. RWA positions typically offer steadier net interest margins compared to the volatile liquidation and stability fees associated with crypto collateral.

The relationship between capital locked and revenue generated has become more complex under the Sky Savings Rate (SSR) regime. The protocol’s annualized earnings are essentially a spread business: it captures high-single-digit yields from Treasuries and money-market funds while distributing a portion to USDS holders to drive adoption. In late 2024, governance aggressively pushed these rates as high as 12.5% to catalyze the rebrand, though subsequent adjustments down to the 7%–9% range in early 2025 demonstrate a maturation toward sustainable profitability. This "cost of goods sold," the interest paid to depositors, is the protocol's largest single expense line, far outstripping traditional operational overhead.

Comparative Valuation and the "RWA Discount"

Despite its dominant market position and robust cash flows, the market continues to apply what analysts describe as a significant "RWA discount" to the SKY token. This is most evident when comparing valuation multiples across the lending and CDP sectors.

Sky's P/F ratio suggests the market is pricing in regulatory risk or the perceived centralization of the RWA-heavy model. In contrast, protocols like Aave, which focus more on pure crypto-to-crypto lending, command multiples that are nearly ten times higher. This valuation lag persists despite Sky’s ability to maintain a massive net profit margin. The Sky Frontier Foundation reported a year-over-year net profit increase of over 24%, reaching a run rate of roughly $168M by late 2025. The market appears to be weighing the increased regulatory compliance, specifically the USDS freeze function, against the protocol's earnings durability.

Operational Efficiency and the "Sky Star" Architecture

The Endgame vision has successfully lean-sized the core protocol's footprint. By offloading specific growth and product verticals to Sky Stars (SubDAOs) like Spark, Grove, and Keel, the core DAO has reduced its direct operating expenses by over 60%. These Stars function as autonomous business units with their own treasuries and mandates. The Sky Pause Proxy treasury holds substantial internal capitalization to seed and support these sub-DAOs.

This modularity allows for rapid multi-chain expansion. USDS has emerged as one of the fastest-growing non-custodial stablecoins on high-throughput networks like Solana, leveraging the Stars to manage local liquidity and integrations. However, this fragmentation also introduces new risks. Liquidity for the SKY token remains concentrated in a limited number of venues, which could lead to slippage issues during large-scale treasury rebalancing or buyback operations.

Risk Assessment and Failure Modes

The primary risk to the Sky bull case is the Compliance Paradox. To access institutional yields from U.S. Treasuries, the protocol must align with traditional financial regulations. The contract-level freeze function in USDS is the most visible manifestation of this trade-off. While this mechanism is routed through governed multisigs and decentralized procedures rather than a single corporate control point, it represents a departure from the immutable and permissionless ethos of legacy DAI.

The protocol also faces yield compression risk. As on-chain yields fluctuate, Sky must continuously adjust the SSR and DSR to remain competitive without eroding its profit buffer. The swing from reported profit to a temporary quarterly loss in early 2025, driven by a 102% surge in interest expenses, illustrates how incentive structures can backfire when mismatched with treasury yields.

Strategic Outlook for 2026

Sky enters 2026 as a hybrid entity: a DeFi protocol by technical architecture, but a global credit and savings institution by economic function. Its ability to sustain over $6B in TVL while executing a full brand and tokenomic transition underscores the durability of its original design. The coming year will likely focus on the maturation of Star tokens and the continued redirection of surplus capital into SKY buybacks, which have already deployed tens of millions in USDS to support token value.

The protocol’s central challenge remains perception. If Sky can demonstrate that a regulated-yet-decentralized model can withstand regulatory scrutiny and market volatility while continuing to outperform peers financially, the valuation gap may narrow. For now, Sky remains the most profitable spread business in the digital asset ecosystem, albeit with a distinct set of compliance-driven risks. Not financial advice, DYOR.

Outlook

Sky’s strategic trajectory into 2026 reflects a protocol that has successfully navigated one of the most complex rebrands in decentralized finance. It has transformed from a crypto-native collateral system into a global RWA-backed credit engine. While the Endgame architecture introduces new centralized vectors, most notably the USDS freeze mechanism, the economic results point to superior cash-flow generation and a maturing operational model that sustains its dominance in the CDP sector.

Market Position and Competitive Outlook

Sky’s ability to maintain a 72.2% market share in the CDP category reflects deep network effects and long-term protocol durability. Despite recent TVL contraction, the protocol’s structural resilience is evidenced by its $168M annualized net profit, placing it well ahead of most competitors. The 2026 competitive landscape will likely test Sky’s ability to defend this position against both decentralized alternatives and centralized stablecoin issuers.

The persistent RWA discount applied to SKY valuation remains the market’s primary anomaly. With a P/F ratio of 3.16, investors continue to price in regulatory trade-offs associated with the USDS model. As Sky Stars mature and develop independent revenue streams, the core protocol’s role may evolve toward that of a central risk manager and capital allocator, potentially enabling a valuation re-rating if institutional revenue proves durable.

Forward-Looking Risks and Opportunities

Managing the savings rate spread remains the most immediate challenge. The early 2025 quarterly loss, driven by a sharp increase in interest expenses, underscored the importance of disciplined incentive design. Fragmented SKY liquidity, currently around $6.7M, also constrains the scale and efficiency of the protocol’s ongoing buyback program, which has already absorbed tens of millions in USDS.

At the same time, the multi-Star model presents meaningful upside. By capitalizing SubDAOs like Spark with more than $140M in internal resources, Sky is effectively building a decentralized financial conglomerate. If these Stars successfully capture market share in lending, RWA servicing, and institutional credit, value accrual to SKY holders through revenue and buybacks could be substantial.

Conclusion

Sky enters 2026 as the most profitable spread business in DeFi. Its evolution from a liquidation-driven system to a steady RWA-yield-based institution has traded some permissionless purity for scale, stability, and regulatory durability. The protocol’s long-term success now depends on navigating the Compliance Paradox, maintaining user trust while operating within global regulatory frameworks. The next year will determine whether Sky solidifies its role not just as a DeFi pioneer, but as a foundational pillar of the global digital financial system.

Loading...