S&P Global Ratings awarded a credit rating “B-” to Sky Protocol, formerly known as the Maker Protocol, the first time that a large agency has published a rating for a decentralized financial platform (DEFI).
The rating is part of the continuous evaluation of stablecoin transmitters by S&P, which started in 2023 to assess their ability to maintain stable value compared to fiduciary currencies. The examination covers the solvency of the responsibilities of Sky, the stablescoins USDS (USDS) and DAI (DAI) and the savings tokens Susds and SDAI.
Sky Protocol, evaluated for the first time, received a 4, labeled “forced”, for the ability of the USD to maintain its ankle to the US dollar. The scale goes from 1 for very strong at 5 for the weak.
Sky Protocol is a decentralized loan platform that allows users to borrow loans supported by cryptocurrencies. Its Stablecoin USDS, used to facilitate loan and loan transactions, is the fourth largest by market capitalization, with around 5.36 billion dollars at the time of writing, according to CoinmarketCap.
S&P has highlighted the key risks that could trigger a defect, including deposit withdrawals exceeding the available liquidity in the PEG stability module and credit losses exceeding available capital.
Government, capitalization and regulatory risk are the main concerns
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The S&P rating highlighted the weaknesses of the protocol, in particular a high concentration of deposit, centralized governance, dependence on the founder, regulatory uncertainty and low capitalization. These risks have been partially offset by credit losses and the minimum profits of the protocol since 2020.
Andrew O’Neil, the analytical manager of digital assets of S&P Global, told Cointelegraph: “A note B-” means that we think that the protocol can currently comply with its financial obligations, but it would be vulnerable in the unfavorable commercial, financial and economic conditions. »»
The Sky ecosystem Active Liability Committee told it that the process had given it a chance to examine both traditional counterpart risks and specific vulnerabilities such as the intelligent contract, the oracle, the bridge and the risks of governance.
“Within the framework of the interviews and the documentation that we shared with S&P, we had the opportunity to review and challenge some of the analytical hypotheses behind the risks of counterpart which are typical of Tradfi but do not necessarily apply on the chain, and we have also examined the risks of new, which must be monitored and implemented, they were carefully on the risks.
Sky co-founder, Rune Christensen, holds almost 9% of governance tokens. The evaluation of S&P said: “The protocol governance process remains very centralized due to the low participation of voters during key decisions.”
Another concern is the capitalization of Sky is. According to the evaluation, with a capital ratio adjusted at risk of 0.4% to July 27, the protocol has a limited surplus reserve pad to cover potential credit losses.
The evaluation of S&P also reduced the anchoring note of the protocol to “BB”, four notches below the anchoring of the American bank of “BBB +”, citing regulatory uncertainty in the DEFI sector.
Stablecoin transmitters under a meticulous examination
While cryptocurrency continues to deepen its commitment to traditional financial markets, more institutions in cryptographic space are introduced into the formal credit rating system.
S&P Global launched its evaluation of the stability of Stablescoin in December 2023. According to the report, Circle USDC (USDC) received a note of 2 (Strong), while Tether (USDT) and USDS classified 4 (forced).
“Tether’s weaknesses are more around transparency, while the USDS has a more complex asset base compared to the USDC. And indeed, the relatively low capital position is also something that leads to this relative classification, “said O’Neil.
The first mortgage-based mortgage based on blockchain to receive a Global S&P note was a technology solutions, a technological platform that feeds a blockchain market for financial products. In June, the latest securitization of mortgage assets per figure, totaling $ 355 million, obtained an “AAA” note from S&P Global.
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