[TL;DR]

MakerDAO has recently been renamed Sky Protocol and launched a new Stable Coin USDS and governance Token SKY. This upgrade aims to seek its rise and breakthrough in the field of Decentralized Finance.

The launch of Sky Protocol has sparked wide discussions on Decentralization, compliance, and rebranding, especially the freezing function that may be introduced by the new Stable Coin USDS, which has raised concerns and criticisms in the community.

In the future, whether Sky Protocol can take over and strengthen its original competitive advantages in the Decentralized Finance ecosystem will depend on its ability to respond to regulatory requirements, meet community needs, and drive technological innovation.

Introduction

After two years of careful preparation, MakerDAO finally announced this week that it is entering a new phase according to the Endgame plan, officially renaming itself as Sky Protocol and launching the stablecoin USDS and the governance Token SKY.

This transformation, while eye-catching, has also sparked a diverse discussion about Decentralization, Compliance, and brand transition. This article will delve into the new opportunities and challenges under this upgrade, to enlighten the readers.

MakerDAO upgrades to SKY and will launch new stablecoins and governance tokens

This week, the long-standing Decentralized Finance Lending protocol MakerDAO, which has been brewing for two years, officially announced its renaming to Sky Protocol, aiming to promote the popularization of Decentralized Finance (DeFi) and the simplification of user experience.

The most prominent aspect of this brand upgrade is the launch of the new Stable Coin USDS and governance Token SKY. According to the rules, USDS is exchanged with DAI at a ratio of 1:1, and the ratio of MKR to SKY is 1:24,000. The existing DAI Stable Coin and MKR governance Token will continue to circulate, and users can choose to upgrade voluntarily.

Figure 1 Source: sky.money

Meanwhile, MakerDAO's SubDAO has been renamed Sky Stars, and each Sky Star sub-DAO will be able to independently issue governance tokens, manage its finances and community. The first project, subDAO Spark, is a Decentralized Finance Lending platform based on Sky, with a current TVL of $2.42B, ranking third in Decentralized Finance lending protocols.

Figure 2 Source: DefiLlama

In addition, the project party will launch a new product Sky.money and a new Decentralized Finance application on September 18, to take on the key functions of Sky Protocol, and introduce a multi-chain solution Skylink to support the migration of new Tokens such as USDS and SKY to the main L2 network.

To cooperate with this upgrade, the project party also carried out related reward activities. Users holding USDS will receive SKY Token rewards, with an annual distribution of 6 billion. Sky has also launched a double 'early bird' reward activity. Before September 18, users can receive double rewards by providing USDS to the Sky Token reward module on Sky.money.

In addition to the above measures, MakerDAO will also optimize smart contracts, improve governance mechanisms, and enhance system scalability, etc., which will not be repeated here.

Mixed opinions in the community, average price performance

Despite this brand upgrade triggering market follow, the price of Token MKR did not receive buying speculation on the eve of the upgrade. Instead, it followed the overall market's downward trend after the upgrade, with unsatisfactory price performance.

Figure 3 Source: gate

This is in stark contrast to the enthusiasm surrounding MakerdaoDAO's entry into the RWA track last year, indicating that the market is not buying into this upgrade.

The main criticism in the community at present is that the new Stable Coin USDS will introduce a freezing function. In the eyes of most users, this move will make USDS closer to centralized Stable Coins such as USDT and USDC, thereby weakening its resistance to censorship and permissionless characteristics, directly touching the core principles of Decentralization advocated by Decentralized Finance.

MakerDAO's co-founder Rune clarified this. He pointed out that USDS did not have the freezing function at the beginning of its launch, and emphasized that the implementation of this function would be based on future governance decisions, aiming to prevent risks and comply with legal requirements in the jurisdiction. At the same time, he reiterated the stability and immutability of DAI, as well as the existence of USDS as an optional upgrade.

Figure 4 Source: @RuneKek

In addition, Sky's official website restricts access to some regions and prohibits the use of VPNs. The recognition of USDS is far inferior to DAI, and the improper handling of the original official Twitter account has further exacerbated the community's concerns, resulting in a lack of enthusiasm among users for the migration to the new coin.

In short, the community has more negative reviews than positive recognition for this upgrade, and whether MKR will have a boost in performance may need further observation after the launch of Sky.money in mid-September.

Can Sky Break the Deadlock for MakerDAO's Weak Rise?

In my opinion, this upgrade is more of an attempt by MakerDAO to break through the bottleneck in the Decentralization stablecoin field. In its exploration of catering to regulators, it has also touched on the concept of Decentralization in the community, which has led to more criticism than praise for this upgrade.

In fact, although DAI occupies an important position in the field of Decentralized Finance, its application scenarios are not widespread and have long been squeezed by the market share of centralized stablecoins such as USDT.

According to the data from DefiLlama, as of the writing date, DAI ranks 3rd in market capitalization in the stablecoin sector, but USDT and USDC account for 69.71% and 19.97% of the market share respectively, while DAI only accounts for 3.09%.

Figure 5 Source: DefiLlama

The decline in DAI's market share is mainly due to the continuous issuance of USDT, but the stagnant Market Cap of DAI in the past year is also an important factor. After reaching a peak Market Cap of $7.1B in August 2022, DAI has been continuously declining to a low of $3.9B, and it has been hovering around $5.3B for a year. This undoubtedly highlights the dilemma faced by MakerDAO in expanding the adoption of DAI amid the decline in returns brought by institutional funds entering the market, ETFs, and interest rate cuts.

Figure 6 Source: THEBLOCK

It is not difficult to see from this that MakerDAO's upgrade this time aims to use USDS to support RWA use, opening up competition with Tether and Circle, while retaining DAI so as not to weaken its advantage in the Decentralized Finance DecentralizationStable Coin track, thus achieving both offensive and defensive capabilities.

Overall, MakerDAO's transition to Sky is a comprehensive brand and product upgrade, but its design of USDS freezing function, blocking access to certain regions, and other actions that cater too much to regulation, have exposed issues in incomplete communication with the community and upgrade planning. Whether SKY can strengthen its original market advantages and promote more rise, innovation, and participation in the entire Decentralized Finance ecosystem will depend on its ability to respond to regulatory requirements, meet community needs, and promote technological innovation.

Author: Carl Y.

This article represents only the author's point of view and does not constitute any trading advice.

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