Original title: DeFi Savings Protocol Sky Slumps to $5M Loss as USDS Interest Payments Wipe Out Profit Original authors: Tim Craig & Sheldon Reback, CoinDesk Original translation: Rhythm Little Deep

Editor’s note: DeFi savings protocol Sky (formerly MakerDAO) reported a loss of $5 million in the first quarter of 2025, in stark contrast to a profit of $31 million in the previous quarter. The loss was mainly due to incentives to use the new stablecoin USDS instead of DAI, leading to a 102% surge in interest payments. Although USDS aims to attract sophisticated investors, its user base growth remains unclear, and the protocol's profitability is weighed down by high interest rates.

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TL;DR

· DeFi savings protocol Sky (formerly MakerDAO) reported a loss of $5 million in the first quarter, a significant drop from the previous quarter's profit of $31 million.

· To incentivize users to use the new stablecoin USDS instead of DAI, the protocol increased interest payments to depositors by 102%.

· Although USDS was launched to attract sophisticated investors, it remains unclear whether it has significantly expanded Sky's user base.

Sky co-founder Rune Christensen (original image provided by Trevor Jones)

According to a report from Sky contributor Steakhouse Financial, the DeFi savings protocol Sky lost $5 million in the first quarter due to interest payments to token holders more than doubling.

This loss is in stark contrast to the previous quarter when Sky recorded a profit of $31 million. The 102% increase in interest payments is due to the protocol's decision to incentivize users to use the newer Sky dollar 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 and has attracted a large influx of funds,' Sky co-founder Rune Christensen told CoinDesk via Telegram. Many investors still chose to stay when Sky lowered the rate to 4.5% in February, he said.

This situation is a double-edged sword for the protocol, which is one of the first decentralized finance applications that emerged on Ethereum in 2017.

Sky operates similarly to a traditional bank. It needs to lend to others at a rate higher than what it pays to depositors.

However, offering higher interest rates without a corresponding increase in USDS demand is harming the protocol's profitability, PaperImperium, a governance contact at blockchain research and development firm GFX Labs, told CoinDesk via Telegram.

'USDS is a significant drag on yields,' he said. 'DAI is profitable, but USDS is not.'

Driving USDS is part of what Sky calls the '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 than DAI.

USDS is designed to be more compliant with regulatory and financial reporting requirements, aiming to attract hedge funds, family offices, and other sophisticated institutional investors looking to get involved in decentralized finance.

But it is still unclear whether USDS has attracted a large number of new users.

Investors can obtain different returns on USDS and DAI: USDS pays a yield of 4.5%, while DAI offers 2.75%.

Many investors have exchanged DAI for USDS, meaning Sky needs to pay more to users who were previously satisfied with lower or even no yields, PaperImperium stated.

The report states that since the beginning of this quarter, the total supply of USDS and DAI has increased by 57%. However, a significant portion of this growth comes from the synthetic dollar protocol Ethena, which has invested over $450 million into staked USDS and passed the yields onto users staking its own stablecoin USDe.

In the past week, Ethena has shifted part of its reserves from USDS to USDtb—a stablecoin backed by BlackRock's dollar institutional digital liquidity fund (BUIDL).

This move means a reduction in the circulating USDS. But it may also benefit Sky by reducing the amount of interest the protocol needs to pay.

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