Original title: DeFi Savings Protocol Sky Slumps to $5 M Loss as USDS Interest Payments Wipe Out Profit
Original author: Tim Craig Sheldon Reback, CoinDesk
Editors note: DeFi savings protocol Sky (formerly MakerDAO) lost $5 million in the first quarter of 2025, in stark contrast to the $31 million profit in the previous quarter. The loss was mainly due to the incentive to use the new stablecoin USDS instead of DAI, which led to a 102% surge in interest payments. Although USDS is designed to attract sophisticated investors, its user base growth is unclear and the protocols profitability is dragged down by high interest rates.
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TL;DR
DeFi savings protocol Sky (formerly MakerDAO) lost $5 million in the first quarter, a sharp drop from the $31 million profit in the previous quarter.
To incentivize users to use the new stablecoin USDS instead of DAI, the protocol increased interest payments to depositors by 102%.
· Although USDS was launched to attract sophisticated investors, it is unclear whether it significantly expanded Sky’s user base.
Sky co-founder Rune Christensen (Original image provided by Trevor Jones)
DeFi savings protocol Sky lost $5 million in the first quarter as interest payments to token holders more than doubled, according to a report from Sky contributor Steakhouse Financial.
The loss is in stark contrast to the previous quarter, when Sky recorded a profit of $31 million. The 102% increase in interest payments was due to the protocol’s decision to incentivize users to use the newer Sky USD stablecoin (USDS) instead of the existing DAI.
“Sky’s savings rate remained at 12.5%, which was very high relative to the rest of the market, and attracted a lot of inflows,” Sky co-founder Rune Christensen told CoinDesk via Telegram. When Sky lowered its rate to 4.5% in February, many investors chose to stay, he said.
The situation is a double-edged sword for the protocol, which was one of the first decentralized financial applications to emerge on ethereum in 2017.
Sky operates like a traditional bank. It needs to lend money to others at a higher interest rate than it pays depositors.
However, offering higher interest rates without a corresponding increase in USDS demand is hurting the profitability of the protocol, Paper Imperium, governance liaison at blockchain research and development firm GFX Labs, told CoinDesk via Telegram.
“USDS is a significant drag on yields,” he said. “DAI is making money, USDS is not.”
The push for USDS is part of Sky’s so-called “endgame plan,” led by Christensen, to transform the protocol into a more decentralized and resilient system.
No new requirements?
When Sky rebranded from MakerDAO and launched USDS in August as part of its endgame plan, the plan was that the new stablecoin would attract a different user base than DAI.
USDS is designed to be more compliant with regulations and financial reporting requirements, with the goal of attracting hedge funds, family offices, and other sophisticated institutional investors looking to get involved in decentralized finance.
But it’s unclear whether USDS has attracted a large number of new users.
Investors receive different returns on USDS and DAI: USDS pays a 4.5% yield, while DAI is 2.75%.
Many investors swapped DAI for USDS, which meant Sky needed to pay more to users who had previously been content with lower or no yields, Paper Imperium said.
The report said that the total amount of USDS and DAI has increased by 57% since the beginning of the quarter. But a large part of this growth came from the synthetic dollar protocol Ethena, which has invested more than $450 million in staked USDS and passed the returns to users who staked its own stablecoin USDe.
In the past week, Ethena shifted part of its reserves from USDS to USDtb — a stablecoin backed by BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL).
The move means there are fewer USDS in circulation. But it could also benefit Sky by reducing the amount of interest the protocol has to pay.
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