S&P Global Ratings has assigned a “B-” issuer credit rating to Sky Protocol, formerly known as Maker Protocol, marking the first time a major rating agency has evaluated a decentralized finance (DeFi) platform.
This rating is part of S&P’s ongoing review of stablecoin issuers, which began in 2023 to assess their ability to maintain a stable value relative to fiat currencies. The assessment covers the creditworthiness of Sky’s liabilities, including the USDS and DAI stablecoins, as well as the sUSDS and sDAI savings tokens.
For the first time evaluated, Sky Protocol received a “4” rating—classified as “constrained”—for the USDS stablecoin’s ability to maintain its peg to the US dollar. The rating scale ranges from 1 (very strong) to 5 (weak).
Sky Protocol operates as a decentralized lending platform that allows users to borrow cryptocurrency-backed loans. Its USDS stablecoin, which facilitates lending and borrowing transactions, is the fourth-largest stablecoin by market capitalization, valued at approximately $5.36 billion at the time of writing, according to CoinMarketCap.
S&P also highlighted several key risks that could lead to a default, including depositor withdrawals exceeding the liquidity available in the peg stability module and credit losses surpassing the platform’s available capital.
The primary concerns are government involvement, capitalization, and regulatory risk
The S&P rating highlighted several weaknesses in the protocol, including high depositor concentration, centralized governance, dependence on the founder, regulatory uncertainty, and weak capitalization. However, these risks were somewhat mitigated by the protocol’s minimal credit losses and steady earnings since 2020.
Andrew O’Neil, S&P Global’s digital assets analytical lead, told Cointelegraph, “A ‘B-’ rating means that we believe the protocol can currently meet its financial obligations but would be vulnerable under adverse business, financial, and economic conditions.”
The Sky Ecosystem Asset-Liability Committee stated that the rating process allowed them to assess both traditional counterparty risks and DeFi-specific vulnerabilities such as smart contract, oracle, bridge, and governance risks.
“Through interviews and documentation shared with S&P, we had the opportunity to revisit and challenge some analytical assumptions typical of traditional finance that don’t necessarily apply on-chain. We also examined unique DeFi risks — smart contract, oracle, bridge, and governance — that require careful monitoring and mitigation,” they told Cointelegraph.
Sky co-founder Rune Christensen holds nearly 9% of the governance tokens. S&P’s assessment noted that “the protocol’s governance process remains highly centralized due to low voter turnout during key decisions.”
Capitalization remains a significant concern. The assessment revealed that, as of July 27, Sky had a risk-adjusted capital ratio of just 0.4%, indicating a limited surplus reserve buffer to absorb potential credit losses.
S&P’s assessment also lowered the protocol’s anchor rating to “bb,” four notches below the US bank anchor of “bbb+,” citing regulatory uncertainty in the DeFi sector.
Stablecoin issuers face heightened scrutiny
As cryptocurrency increasingly integrates with traditional financial markets, more crypto institutions are entering the formal credit rating system.
S&P Global introduced its stablecoin stability assessment in December 2023. According to the report, Circle’s USDC received a strong rating of 2, while Tether and USDS were both rated 4, classified as “constrained.”
“Tether’s challenges mainly stem from transparency issues, whereas USDS has a more complex asset structure compared to USDC. Additionally, USDS’s relatively weak capital position contributes to its lower ranking,” explained Andrew O’Neil.
In a milestone for blockchain finance, Figure Technology Solutions—the platform behind a blockchain-based marketplace for financial products—became the first to receive an S&P Global rating for a blockchain-based mortgage securitization. In June, Figure’s latest $355 million mortgage asset securitization earned an “AAA” rating from S&P Global.
