Title: DeFi Savings Protocol Sky Slumps to $ 5 M Loss as USDS Interest Payments Wipe Out Profit
Authors: Tim Craig & Sheldon Reback, CoinDesk Authors
Translated by: BlockBeats small deep
Editor's Note: The DeFi savings protocol Sky (formerly MakerDAO) suffered a $5 million loss in the first quarter of 2025, in stark contrast to the $31 million profit in the previous quarter. The loss was primarily due to incentivizing the use of the new stablecoin USDS instead of DAI, leading to a 102% surge in interest payments. Despite USDS being aimed at attracting seasoned investors, its user base growth remains unclear, and the protocol's profitability is hampered by high interest rates.
Original content follows (slightly edited for readability):
TL;DR
· DeFi savings protocol Sky (formerly MakerDAO) incurred a $5 million loss in the first quarter, a significant 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%.
· Despite launching USDS to attract sophisticated investors, it remains unclear whether Sky has significantly expanded its user base.
Sky co-founder Rune Christensen (original image by Trevor Jones)
According to a report by Sky contributor Steakhouse Financial, the DeFi savings protocol Sky suffered a $5 million loss in the first quarter, primarily due to more than doubled interest payments to token holders.
This loss stands in sharp contrast to the previous quarter when Sky recorded a $31 million profit. 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 remains at 12.5%, which is very high compared to other parts of the market, attracting significant capital inflow," Sky co-founder Rune Christensen told CoinDesk via Telegram. He added that many investors chose to stay even when Sky reduced the rate to 4.5% in February.
This situation is a double-edged sword for the protocol, which was one of the first decentralized finance applications to emerge on Ethereum in 2017.
Sky operates similarly to traditional banks. It needs to lend to others at rates higher than what it pays to depositors.
However, offering higher rates without a corresponding increase in USDS demand is harming the protocol's profitability, according to PaperImperium, governance liaison at blockchain research and development company GFX Labs, who spoke to CoinDesk via Telegram.
"USDS is a significant drag on earnings," he said. "DAI is profitable, USDS is not."
Pushing USDS is part of Sky's so-called "endgame plan," 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 the endgame plan, the intention was for the new stablecoin to attract a different user base from DAI.
USDS is designed to be more compliant with regulations and financial reporting requirements, targeting hedge funds, family offices, and other sophisticated institutional investors looking to enter decentralized finance.
However, it remains unclear whether USDS has attracted a significant number of new users.
Investors can earn different returns on USDS and DAI: USDS offers a 4.5% yield, while DAI provides 2.75%.
Many investors have swapped DAI for USDS, meaning Sky now needs to pay more to users who were previously satisfied with lower or no yields, PaperImperium noted.
The report indicates that the total amount of USDS and DAI has increased by 57% since the beginning of this quarter. However, a significant portion of this growth comes from the synthetic dollar protocol Ethena, which has invested over $450 million in staked USDS and passes the returns to users staking its own stablecoin, USDe.
In the past week, Ethena has shifted some of its reserves from USDS to USDtb—a stablecoin backed by BlackRock's USD Institutional Digital Liquidity Fund (BUIDL).
This move means a reduction in circulating USDS. But it could also benefit Sky by reducing the amount of interest the protocol must pay.
