Moody’s has assigned Sky Protocol a B3 rating with a stable outlook, describing it as the first time the agency has rated a stablecoin protocol. Sky, formerly known as MakerDAO, manages the dollar-pegged USDS and DAI stablecoins.
The rating gives formal credit analysis to a major decentralized stablecoin system, but Moody’s said Sky’s capital base remains a major constraint. As of September, the protocol had about $90 million in tangible common equity against roughly $10 billion in tangible managed assets, a level Moody’s called a material credit weakness.
What supported the rating
Moody’s said Sky benefits from several strengths, including low historical credit losses, a large pool of liquid assets, and profitability that it views as solid relative to the risks on the balance sheet. Since 2020, the protocol has recorded about $15 million in cumulative losses.
The agency also pointed to the composition of Sky’s assets. Around 45% to 50% were held in stablecoins and tokenized money market funds, while another roughly 25% was tied to cryptocurrency-backed loans. Those figures indicate that a substantial share of assets has remained in comparatively liquid instruments, even as part of the portfolio carries crypto-linked risk.
Why Moody’s sees meaningful weaknesses
Despite those positives, Moody’s said Sky’s capitalization is thin relative to the assets it manages. The gap between about $90 million in tangible common equity and roughly $10 billion in tangible managed assets was central to the B3 assessment.
The agency also highlighted the structure of Sky’s liabilities, noting that stablecoin obligations can be confidence-sensitive. In addition, Moody’s said the protocol’s DAO-based governance weighs on the credit profile, alongside the absence of audited financial statements.
Moody’s further noted that Sky lacks formal incorporation as well as employees, officers, and directors. Those features, common in decentralized structures, were cited as additional operational, governance, legal, and regulatory concerns in the rating analysis.
What could move the rating
According to Moody’s, an upgrade would likely require stronger capitalization, with the ratio of tangible common equity to tangible managed assets rising above 2.5%, while profitability, liquidity, and asset risk remain broadly stable. The agency also said meaningful mitigants to operational, governance, legal, and regulatory risks could support a higher assessment.
By contrast, the rating could come under pressure if the same capital ratio falls below 0.5%, if Sky posts consecutive quarterly losses, or if liquidity weakens. Those triggers place particular emphasis on whether the protocol can preserve earnings and maintain a sufficient cushion against losses.
Sky’s stated capital goal and the next watchpoint
Sky is aiming to increase tangible common equity to $150 million over the medium term. That target suggests the protocol is attempting to build a larger capital buffer after Moody’s identified capitalization as the key weakness in its credit profile.
Moody’s also noted that if losses were to exceed available capital, Sky could respond by minting and selling new governance tokens. The agency said such a step could carry implications for USDS and DAI, making capital growth and loss containment the main confirmed issues to watch following the rating.
Source: news.bitcoin.com