Moody's assigned a B3 long-term counterparty risk rating with a stable outlook to Sky Protocol, marking the agency's first rating of a stablecoin protocol. Sky, formerly MakerDAO, oversees the dollar-pegged stablecoins USDS and DAI.
The October rating report highlighted a stark capital disparity: Sky held approximately $90 million in tangible common equity against roughly $10 billion in tangible managed assets as of September. Moody's called this capital position a "material credit weakness." The implied capital ratio of 0.9 percent sits well below the 2.5 percent threshold Moody's identified as necessary for a potential rating upgrade.
Moody's acknowledged several offsetting strengths: solid operating history within decentralized finance, relatively liquid assets, and low historical credit losses. Since 2020, Sky has posted about $15 million in cumulative losses. Asset composition breaks roughly 45 to 50 percent stablecoins and tokenized money market funds, with another 25 percent in cryptocurrency-backed loans.
But structural vulnerabilities drove the subdued rating. Sky lacks audited financial statements, formal incorporation, designated employees, officers, or directors. Its decentralized autonomous organization (DAO) structure introduces elevated operational, governance, legal, and regulatory risks. Most critically, the protocol relies on confidence-sensitive stablecoin liabilities—users can withdraw USDS and DAI instantly, creating potential liquidity runs if confidence erodes.
Sky's only backstop for capital shortfalls is a blunt instrument: minting and selling new governance tokens. If that fails and losses exceed available capital, USDS and DAI holders face write-downs.
Sky's roadmap targets raising tangible common equity to $150 million over the medium term to address the capital gap. Moody's outlined the path to an upgrade: the capital ratio must climb above 2.5 percent and hold steady, paired with consistent profitability and stable liquidity.
Downgrade risks are immediate. A capital ratio drop below 0.5 percent would trigger a rating review. Consecutive quarterly losses or weakening liquidity would also pressure the rating lower.
