sUSDS

sUSDS: Sky Protocol's Yield-Bearing Stablecoin Derivative

sUSDS (SUSDS) emerged from MakerDAO's transformation into Sky Protocol in September 2024, carrying forward nearly a decade of decentralized stablecoin infrastructure into a yield-bearing wrapper format.

The token represents a share of USDS deposits earning the Sky Savings Rate, allowing holders to accrue returns passively while maintaining full liquidity and composability across DeFi protocols.

The instrument currently holds approximately $4.2 billion in circulating supply, ranking among the top three yield-bearing stablecoins globally alongside Ethena's sUSDe and BlackRock's BUIDL fund. Its price trades slightly above $1.08, reflecting accumulated yield rather than a deviation from peg—a key distinction from traditional stablecoins that maintain strict dollar equivalence.

sUSDS addresses a structural gap in stablecoin utility: idle capital earning nothing. As the yield-bearing stablecoin market expanded from $1.5 billion to over $11 billion between early 2024 and mid-2025, the demand for productive dollar-equivalent assets has become a defining trend in decentralized finance.

From Maker's Savings Rate to Sky's Yield Infrastructure

The technical lineage of sUSDS traces directly to MakerDAO's Dai Savings Rate mechanism, first introduced in 2017. Rune Christensen, Maker's co-founder, published the original eDollar concept in March 2015, outlining a permissionless credit system backed by crypto collateral.

MakerDAO grew into the largest decentralized lending protocol by 2021, with DAI reaching multi-billion dollar circulation. However, scaling challenges and governance complexity prompted the "Endgame" restructuring plan, culminating in the August 2024 rebrand to Sky Protocol.

The rebrand introduced USDS as DAI's successor alongside SKY as the new governance token, converting at 1:24,000 from MKR. sUSDS launched as the yield-bearing derivative, mirroring sDAI's function but within Sky's expanded infrastructure.

The transition reflects broader industry evolution toward modular protocol design and real-world asset integration—what Christensen described as positioning Sky to compete at "gigantic scale" with centralized stablecoins like Tether.

ERC-4626 Architecture and Accumulating Yield Mechanics

sUSDS implements the ERC-4626 tokenized vault standard, enabling standardized deposit and withdrawal functions across DeFi protocols. The contract deploys as an upgradeable proxy following ERC-1822 UUPS and ERC-1967 storage patterns, allowing governance-controlled modifications.

The token operates as an accumulating rather than rebasing asset. Holder balances remain constant while the underlying redemption value increases according to the Sky Savings Rate—currently set at approximately 4% annually by governance vote.

This design simplifies accounting and tax treatment compared to rebasing alternatives where token quantities change.

When users deposit USDS into the Sky Savings Rate module, they receive sUSDS representing their proportional claim on the underlying pool.

The protocol adds USDS to this pool continuously based on accrued yield, increasing each sUSDS token's redemption value without requiring active claims or staking actions.

The yield funding mechanism draws from three primary revenue streams: stability fees charged on crypto-collateralized loans, returns from U.S. Treasury bill investments through real-world asset allocations, and liquidity provisioning income from SparkLend and the Spark Liquidity Layer. Treasury yields have recently driven allocation shifts as traditional rates declined below 4%.

Cross-chain distribution operates through Wormhole's Native Token Transfer protocol, maintaining unified liquidity across Ethereum, Base, and Solana without wrapped token fragmentation.

SkyLink bridges enable governance-controlled asset movement to additional Layer 2 networks including Arbitrum, Optimism, and Unichain.

Supply Dynamics and Revenue Distribution

sUSDS has no fixed maximum supply—tokens mint when users deposit USDS and burn upon withdrawal. Current circulation stands at approximately 4.2 billion tokens, fluctuating based on depositor activity and redemption flows.

The underlying USDS stablecoin grew from 98.5 million to over 2.32 billion in supply during its first five months, representing rapid adoption alongside continued DAI demand—which retains roughly $5 billion in circulation.

Revenue distribution flows entirely through the savings rate mechanism with no protocol fees assessed on deposits or withdrawals. The Sky Savings Rate adjustment process operates through decentralized governance, with SKY token holders voting on rate parameters based on protocol revenue and competitive positioning.

Historical rates have ranged from 4% to 9% annually depending on market conditions and treasury yield environments.

The June 2025 Spark Liquidity Layer averaged $460,700 in daily revenue, though average APY declined 57% year-over-year from 10.9% to 4.6% as DeFi yields compressed sector-wide.

Concentration analysis reveals that large institutional holders comprise the primary sUSDS user base, with Galaxy Digital cited as a notable staker. The Sky Frontier Foundation's 2025 report indicated USDS supply grew 86% annually, reaching $9.86 billion across DAI and USDS combined.

DeFi Composability and Institutional Treasury Use

sUSDS functions as eligible collateral across major lending protocols, creating leveraged yield strategies unavailable with non-productive stablecoins. Morpho lists sUSDS as collateral for flagship ETH, USDC, and USDT vaults on Ethereum mainnet.

The Spark Liquidity Layer supplies USDS liquidity directly to Aave's Lido lending market and Morpho's USDe/sUSDe collateral markets, generating yield that flows back to SSR depositors.

Curve Finance hosts the most active sUSDS trading pair with FRXUSD, while Uniswap V3 and V4 provide additional liquidity venues. DeFi users can pair sUSDS in automated market makers to stack swap fees atop the native savings rate, or leverage positions through protocols like Gearbox.

Treasury management represents the dominant institutional use case. DAOs and funds park idle stablecoin reserves in sUSDS to generate yield without sacrificing immediate liquidity. The non-custodial structure means protocols retain direct control rather than depositing with centralized counterparties.

Spark's integration with PayPal launched a PYUSD Savings Vault in December 2025, anchoring PayPal stablecoin yields to the Sky Savings Rate and targeting $1 billion in deposits—illustrating growing institutional demand channels.

Centralization Concerns and Credit Rating Assessment

S&P Global assigned Sky Protocol a B- credit rating in August 2025—the first major agency rating for any DeFi protocol. The assessment explicitly evaluated sUSDS and sDAI as part of Sky's liability structure.

The rating cited high depositor concentration, centralized governance, founder reliance, regulatory uncertainty, and weak capitalization as primary risk factors.

USDS received a "4" (constrained) stability rating on S&P's 1-5 scale, trailing USDC's "strong" assessment.

Founder Rune Christensen controls nearly 9% of governance tokens through delegated voting power, with S&P noting that "the protocol's governance process remains highly centralized due to low voter turnout during key decisions." The risk-adjusted capital ratio stood at just 0.4% as of July 2025, providing minimal buffer against potential credit losses.

A February 2025 governance controversy illustrated these centralization dynamics when Christensen pushed through an emergency proposal expanding MKR borrowing parameters—critics alleged the changes protected his personal leveraged positions while consolidating voting control.

Smart contract risk persists despite multiple audits from ChainSecurity and Cantina, with a $10 million Immunefi bug bounty providing additional security incentive.

The upgradeable proxy architecture introduces governance attack vectors that static contracts avoid.

Regulatory exposure remains undefined as DeFi-specific frameworks continue evolving. The GENIUS Act in the United States bars stablecoin issuers from directly distributing yield, driving capital toward protocol-native alternatives like sUSDS—though this regulatory arbitrage may face future scrutiny.

Competitive Position in Yield-Bearing Stablecoin Markets

The yield-bearing stablecoin category distributed over $250 million in rewards during 2025, with sUSDS accounting for approximately 14.2% of that total. Ethena's sUSDe led at 24.9%, followed by BlackRock's BUIDL at 9.7%.

sUSDS competes directly against sUSDe, which offers higher variable yields (averaging 7-19% historically) but carries synthetic exposure to perpetual futures funding rates. BUIDL provides institutional-grade U.S. Treasury exposure but lacks DeFi composability and requires accredited investor qualification.

Ondo's USDY tokenizes Treasury bills directly at 4.25% annual yield, while Solayer's sUSD and Maple Finance's syrupUSDC target specific chain ecosystems and institutional lending niches respectively.

sUSDS differentiates through its decade-long Maker lineage, battle-tested smart contracts, and deep DeFi integration rather than yield maximization. The conservative approach appeals to treasury managers prioritizing security over marginal return optimization.

DAI's continued circulation alongside USDS creates an unusual competitive dynamic within the same protocol—adoption metrics suggest DAI demand has stabilized rather than migrating entirely to USDS, despite Sky's incentive programs.

Structural Requirements for Sustained Relevance

sUSDS depends on continued USDS adoption as its underlying collateral base. Sky Protocol's $2.5 billion Obex incubator commitment and $500 million Solana tokenization initiative aim to expand this foundation through institutional-grade yield projects.

Governance decentralization remains the primary structural weakness.

The S&P rating specifically flagged the >12% probability of default within three years based on current governance concentration—a metric that institutional allocators cannot ignore.

Treasury yield compression has already forced diversification into crypto-native yield sources through Superstate's USCC fund, introducing basis trade exposure that differs fundamentally from government debt backing.

The planned Sky Agent Framework and Core Council governance evolution target a two-year timeline for institutional-grade governance structures. Whether this timeline satisfies institutional due diligence requirements remains uncertain.

Competition from banking-integrated stablecoins looms as traditional financial institutions explore tokenized yield products under emerging regulatory frameworks. A16z projects stablecoins becoming part of banking's technology stack, potentially commoditizing the yield distribution that currently differentiates DeFi protocols.

sUSDS occupies the intersection of decentralized infrastructure and traditional yield generation—a positioning that offers both opportunity and existential risk as these worlds continue converging.