DeFi Savings Protocol Sky Slumps to $5M Loss as USDS Interest Payments Wipe Out Profit
DeFi Savings Protocol Sky Records $5 Million Loss in Q1 Due to Surging USDS Interest Payments
In a surprising turn of events, the DeFi savings protocol Sky faced a $5 million loss in the first quarter, a significant decline from the substantial $31 million profit recorded in the previous quarter.
This drastic shift was attributed to a 102% surge in interest payments to token holders, aimed at encouraging the adoption of its new stablecoin, USDS, over the established DAI.
Despite efforts to attract more sophisticated investors with the introduction of USDS as part of its Endgame strategy led by Christensen, it remains uncertain if this move has substantially broadened Sky's user base as initially anticipated.
DeFi Savings Protocol Sky Slumps to $5M Loss as USDS Interest Payments Wipe Out Profit
The first-quarter loss is a stark turnaround from the previous quarter, when Sky registered a $31 million profit.
- DeFi savings protocol Sky posted a first-quarter loss of $5 million, a significant drop from the $31 million profit of the previous quarter.
- The protocol increased interest payments to savers by 102% due to incentivizing the use of its new stablecoin, USDS, over DAI.
- Despite the launch of USDS to attract sophisticated investors, it's unclear if it has significantly expanded Sky's user base.
The transition to USDS was meant to cater to regulatory requirements and appeal to institutional investors like hedge funds and family offices seeking exposure to decentralized finance. However, with USDS offering a higher yield of 4.5% compared to DAI's 2.75%, some users made the switch, forcing Sky to pay out more interest than before.
While this shift reduced circulation of USDS, it could ultimately prove beneficial by lowering overall interest obligations for the protocol moving forward.
Sky operates similar to a traditional bank. It needs to lend to others at a rate higher than it pays its savers.
"USDS is a major drag on earnings," he said. "DAI makes money. USDS, not so much."
The push toward USDS is part of Sky’s so-called Endgame plan, an initiative led by Christensen aimed at transforming the protocol into a more decentralized and resilient system.
No new demand?
When Sky rebranded from MakerDAO and launched USDS in August as part of Endgame, the plan was that the new stablecoin would appeal to a different set of users than DAI.
USDS was designed to better comply with regulations and financial reporting requirements. It was targeted toward sophisticated investors like hedge funds, family offices and other institutions looking to dip their toes into decentralized finance.
But it’s unclear if USDS has been able to attract a substantial number of new users.
The returns investors can earn on USDS comapred to DAI is different: USDS pays out 4.5%, while DAI yields 2.75%.
Many investors swapped their DAI for USDS, meaning Sky had pay out more to people who previously were happy to earn a lower yield or, in many cases, no yield at all, PaperImperium said.
The move means there’s less USDS in circulation. But it may also benefit Sky by reducing the amount of interest the protocol must pay out.
He also conducted multiple investigations into alleged crypto scams, and his reporting on Waves was cited in a lawsuit filed by the FTX Recovery Trust against the blockchain’s founder Sasha Ivanov.
