Sky

SKY governs the oldest continuously operating credit system in DeFi — the one that issues Dai and USDS. Its holders set collateral types, debt ceilings, stability fees and the savings rate, which makes this the closest thing on-chain finance has to a central bank run by token vote.

Governance sets monetary policy, not just parameters

Raising the savings rate attracts demand for the stablecoin and costs the protocol revenue. Adding a collateral type expands issuance capacity and adds risk. Debt ceilings cap exposure to any single asset. These are monetary and credit decisions with real consequences, made by token holders in public, and the record of those decisions is auditable.

Real-world assets changed the risk

A large share of backing has moved to off-chain instruments held through legal structures — Treasuries and similar. That improved yield and stability and introduced counterparty, custodial and legal risk that purely on-chain collateral does not carry. Anyone assessing the system should read the current collateral composition rather than assume it resembles the original design.

The system has been recapitalised before

During the March 2020 crash, network congestion caused liquidation auctions to clear at near zero and left the system undercollateralised. It was recapitalised by auctioning governance tokens — diluting holders to cover the shortfall. That is the backstop, and it has been used. Governance tokens here carry a real contingent liability.

Two stablecoins, one system

Dai and USDS run in parallel with shared collateral and governance, serving different feature sets. Holders should know which they hold, because the two are not interchangeable everywhere despite sharing a backing.

What to weigh

The strengths are a decade of operation through multiple crises, genuinely open governance and a documented response to failure. The main risks are governance capture by concentrated holders and the off-chain exposure that now underpins much of the backing.