For the first time a major credit rating agency has rated a decentralized finance (DeFi) platform, S&P Global Ratings has given Sky Protocol, formerly known as Maker Protocol, a B-issuer credit rating. The action is a component of S&P’s stablecoin issuer evaluation, which was started in 2023 to assess stablecoins’ capacity to stay pegged to fiat currencies. The evaluation includes the sUSDS and sDAI savings tokens, as well as Sky Protocol’s liabilities, such as the USDS and DAI stablecoins.
On a scale of 1 (extremely strong) to 5 (poor), Sky Protocol’s USDS stablecoin, which is the fourth-largest by market capitalization at $5.36 billion, was given a “4” peg stability score, putting it in the “limited” category. Users can obtain cryptocurrency-backed loans through the decentralized lending platform, with USDS serving as a key component of settlement and transactions.
High depositor concentration, centralized governance (co-founder Rune Christensen owns almost 9% of governance tokens), low voter participation in important protocol decisions, weak capitalization (as of July 27, the risk-adjusted capital ratio was only 0.4%), and ongoing regulatory uncertainty in the DeFi sector were among the issues raised by the S&P assessment. However, the modest credit losses and earnings stability of the protocol since its inception in 2020 partially offset these weaknesses. A B- issuer credit rating indicates that the protocol can currently satisfy its financial responsibilities but would be vulnerable in unfavorable corporate, financial, or economic situations, according to Andrew O’Neil, S&P’s lead for digital assets.
Regulatory impact and previous S&P assessments
Because of regulatory uncertainties, Sky’s anchor rating was also downgraded to “bb,” which is four rungs worse than the US banking anchor of “bbb+.” The review, according to the Sky Ecosystem Asset-Liability Committee, enabled them to reexamine conventional counterparty risks and evaluate DeFi-specific vulnerabilities, including governance, smart contract, oracle, and bridge risks that need to be regularly watched.
This rating comes after S&P’s December 2023 stablecoin stability assessments, which rated USDC at 2 (strong), Tether (USDT) at 4 (constrained), and USDS also at 4. It also follows S&P’s previous work in blockchain-based financial products, including the $355 million blockchain-powered mortgage securitization by Figure Technology Solutions, which earned an AAA rating in June.