S&P World Scores assigned a “B-” issuer credit standing to Sky Protocol, previously often called Maker Protocol, marking the primary time a significant company has issued a ranking for a decentralized finance (DeFi) platform.
The ranking is a part of S&P’s ongoing evaluation of stablecoin issuers, which started in 2023 to judge their potential 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 the flexibility of USDS to keep up its peg to the US greenback. The dimensions runs from 1 for very robust to five for weak.
Sky Protocol is a decentralized lending platform that permits customers to borrow cryptocurrency-backed loans. Its USDS stablecoin, used to facilitate lending and borrowing transactions, is the fourth-largest by market cap, with about $5.36 billion on the time of writing, based on CoinMarketCap.
S&P highlighted key dangers that would set off a default, together with depositor withdrawals exceeding the liquidity out there within the peg stability module and credit score losses surpassing the out there capital.
Authorities, capitalization and regulatory danger are foremost considerations
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The S&P ranking pointed to weaknesses within the protocol, together with excessive depositor focus, centralized governance, reliance on the founder, regulatory uncertainty and weak capitalization. These dangers had been partly offset by the protocol’s minimal credit score losses and earnings since 2020.
Andrew O’Neil, S&P World’s digital property analytical lead, informed Cointelegraph, “A ‘B-‘ ranking signifies that we consider the protocol at present can meet its monetary obligations, however it might be weak in antagonistic enterprise, monetary and financial circumstances.”
The Sky Ecosystem Asset-Legal responsibility Committee stated the method gave it an opportunity to look at each conventional counterparty dangers and DeFi-specific vulnerabilities akin to good 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 a number of 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 — good‑contract, oracle, bridge and governance dangers — that should be monitored and mitigated fastidiously,” they informed Cointelegraph.
Sky co-founder Rune Christensen holds nearly 9% of governance tokens. S&P’s evaluation stated “the protocol’s governance course of stays extremely centralized resulting from low voter turnout throughout key selections.”
Sky’s capitalization is one other concern. In response 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 ranking to “bb,” 4 notches under the US financial institution anchor of “bbb+,” citing regulatory uncertainty within the DeFi sector.
Stablecoin issuers underneath 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 World launched its stablecoin stability evaluation in December 2023. As per the report, Circle USDC (USDC) obtained a ranking of two (robust), whereas Tether (USDT) and USDS ranked 4 (constrained).
“Tether’s weaknesses are extra round transparency, whereas USDS has a extra complicated asset base in comparison with USDC. And certainly, the comparatively weak capital place can be one thing that drives that relative rating,” O’Neil stated.
The primary blockchain-based mortgage securitization to obtain a ranking from S&P World was Determine Expertise Options, a know-how platform that powers a blockchain-based market for monetary merchandise. In June, Determine’s newest securitization of mortgage property, totaling $355 million, was awarded an “AAA” ranking by S&P World.
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