introduction
On September 18, MakerDAO was officially upgraded to Sky. MakerDAO's original stablecoin DAI was renamed USDS, and the governance token MKR was upgraded to SKY. This series of changes is not sudden, but an important part of the Endgame plan proposed by founder Rune Christensen many years ago, which aims to improve the governance efficiency and scalability of the protocol.
Since its proposal, the Endgame plan has been seen as a key measure to solve the long-standing challenges faced by MakerDAO. With the rapid expansion of the DeFi ecosystem, how to strike a balance between decentralization and scalability, and how to maintain the decentralized nature of the protocol while responding to market demand have become difficult problems that MakerDAO must face. The Endgame plan was born in this context, opening up a new development path for MakerDAO by introducing a dual stablecoin strategy (USDS and PureDai) and a new governance mechanism (SKY token).
This article will deeply analyze the background, content and impact of this brand upgrade, explore the changes brought about by MakerDAO's upgrade to Sky from the strategic perspective of the Endgame plan, and the key significance of this move in the future development of decentralized finance.
1. Background and motivation of MakerDAO upgrading to Sky
1.1 Historical Development of MakerDAO
Since its founding in 2014, MakerDAO has been a pioneer in the decentralized financial ecosystem. As one of the earliest decentralized autonomous organizations, MakerDAO led the launch of the decentralized stablecoin DAI. The core design concept of DAI is to maintain a 1:1 peg with the US dollar through over-collateralization. By using crypto assets such as Ethereum (ETH) and Bitcoin (BTC) as collateral, users can borrow DAI, which gives DAI a decentralized attribute.
Although DAI played a key role in the early decentralization concept, it also faces multiple challenges as the market changes and demand expands. In the competition with centralized stablecoins (such as USDT, USDC, FDUSD) and emerging decentralized stablecoins (FRAX, USDD, USDDe), DAI's market share has gradually declined. Although DAI's market capitalization ranks third, its market share is relatively small compared with the top two USDT and USDC.
The bottleneck of market share has forced MakerDAO to rethink its strategy, especially how to expand the market size while maintaining the core value of decentralization. MakerDAO founder Rune Christensen realized that it is difficult to meet the needs of decentralization and scalability at the same time by relying solely on the existing governance structure and a single DAI stablecoin. Therefore, MakerDAO needs to respond to these new challenges through strategic adjustments.
1.2 Proposal of the Endgame Plan
In 2022, Rune proposed the Endgame plan, which aims to solve the structural problems faced by MakerDAO through a series of changes. The core goal of the Endgame plan is to improve the efficiency of governance, the resilience of the protocol, and further expand the scope of application of the protocol. Its specific measures include: introducing multiple sub-DAOs to achieve decentralization of governance and business, optimizing the decentralized governance model, and launching a dual stablecoin strategy to meet the needs of different markets.
The core concept of the Endgame plan is to promote the long-term sustainable development of MakerDAO through a balance between decentralization and scalability. When proposing this plan, Rune pointed out that the development of DeFi is gradually maturing, but MakerDAO's single governance and single product structure are no longer able to cope with the complex needs of the future. Therefore, the Endgame plan is not only a technological reform, but also a systematic strategy that aims to enhance MakerDAO's market competitiveness and decentralized attributes through decentralized governance and product diversification.
1.3 Necessity of brand upgrading
The Endgame plan reveals three core issues that MakerDAO needs to solve urgently: maintaining decentralization, enhancing compliance, and improving market expansion capabilities. MakerDAO's upgrade to Sky is one of the key steps in the Endgame plan. Through the brand upgrade, MakerDAO aims to enter the DeFi market with a brand new attitude and reshape its market image and product strategy.
Maintaining the core value of decentralization: As a pioneer in decentralized finance, MakerDAO's core value lies in not relying on centralized institutions for management and control. However, as the market changes, the fully decentralized model faces challenges in scale expansion. In order to maintain the core of decentralization, the upgraded Sky introduces a dual stablecoin strategy to distinguish decentralization from compliance, allowing users to choose the appropriate stablecoin (USDS or PureDai) according to their needs, thereby achieving the continuation of decentralization in different application scenarios.
Enhanced compliance: As the DeFi market develops, increasingly stringent regulations have made compliance a factor that cannot be ignored. The USDS stablecoin launched after the brand upgrade aims to enhance its compliance by being linked to real-world assets. This design can better meet the compliance requirements of the global financial market, allowing USDS to be adopted and recognized on a larger scale.
Improve market expansion capabilities: Under the existing governance and product structure, DAI's expansion capabilities are subject to certain limitations, especially when facing competition from centralized stablecoins such as USDT and USDC. After the brand upgrade, Sky not only launched a new governance token SKY, but also promoted users to actively participate in governance through a redesigned incentive mechanism. In addition, through the introduction of more Stars (sub-DAOs), Sky can respond to market demand more flexibly and promote innovation and expansion of the ecosystem.
2. MakerDAO upgrade to Sky’s main content
2.1 Rebranding: From MakerDAO to Sky
MakerDAO's brand upgrade to Sky is not just a simple name change, but a comprehensive reshaping of the protocol architecture, governance structure and ecological development. MakerDAO launched the new Sky protocol and related application platform Sky.money.
Through Sky.money, users can exchange existing DAI stablecoins for USDS at a 1:1 ratio, or exchange them through ETH, USDC, and USDT on the official website. MKR governance tokens can be exchanged for SKY tokens at a ratio of 1:24,000. Sky has also launched a SKY double reward qualification event, which users can obtain by signing with the wallet used for subsequent deposits after completing a small number of social media tasks. However, the details and data of this method have not yet been announced.
2.2 Introduction of USDS and SKY Tokens
This upgrade introduces two new tokens: USDS (upgraded version of DAI) and SKY (upgraded version of MKR). These two tokens are not only a change of name, but also represent changes and reconstruction at the product level.
1） USDS
USDS is a stablecoin backed by real-world assets (RWA). Compared with DAI, it focuses more on compliance and scale expansion. The asset support mechanism behind USDS is more complex. Combining decentralized collateral and the support of real-world assets (RWA), USDS can effectively reduce the risk of price fluctuations and provide holders with more stable returns, becoming an interest-bearing stablecoin.
At the same time, USDS introduced a freezing function. This function is similar to the design of centralized stablecoins USDT and USDC, which allows the freezing of funds in specific accounts under certain circumstances. Although this function was not activated when USDS was launched, its upgradeability has caused widespread controversy in the community. Supporters believe that this is to meet global compliance requirements and ensure the legitimacy of stablecoins within the legal framework; while opponents believe that this goes against the original intention of decentralized finance.
2) SKY Token
As an upgraded version of MakerDAO's governance token MKR, SKY tokens have been optimized in terms of governance structure and incentive mechanism. Each MKR token can be exchanged for SKY tokens at a ratio of 1:24,000. This token split increases the liquidity of governance tokens and lowers the participation threshold for ordinary users, allowing more users to participate in protocol governance.
SKY tokens currently have dual incentives:
Early Bird Rewards: Early users who register on the Sky.money platform and complete specific tasks can receive double SKY token rewards in the future. This mechanism is designed to encourage early adopters and support the initial growth of the protocol.
Staking rewards: SKY token holders can participate in governance and receive additional rewards by staking SKY. The longer the staking period, the higher the reward, to encourage long-term participation in governance.
2.3 New Pattern of Decentralized Governance
The brand upgrade to Sky is not just a change of tokens and names, but more importantly, it redefines the framework of decentralized governance. Sky Stars (i.e. SubDAO) is the most important governance innovation in the Sky protocol. They are a collection of multiple decentralized autonomous organizations (DAOs), each with its own governance tokens and autonomy. These sub-DAOs are able to independently manage their own ecosystems while maintaining close ties with the Sky protocol. This diversified governance structure enables Sky to carry out flexible governance and innovation in different markets and scenarios.
Spark DAO: The first project to land in Sky Stars, its token is SPK. Spark DAO is designed to provide innovative DeFi lending products and provide more competitive lending services in the market by leveraging the economic power of the Sky protocol. Users can obtain SPK tokens by participating in the incentive mechanism of USDS and SKY.
2.4 Scalability and multi-chain solutions
The Sky protocol has also further improved its scalability in the DeFi field by introducing multi-chain extensions and cross-chain bridge Skylink. Skylink allows tokens such as USDS and SKY to migrate freely between multiple blockchains, enabling Sky to interact seamlessly with other Layer 1 and Layer 2 blockchains, improving the protocol's liquidity and cross-chain compatibility, and providing users with more choices and a more efficient trading experience.
3. Endgame Plan and Dual Stablecoin Strategy
3.1 Stablecoin “Trilemma”
The "trilemma" of stablecoins refers to the fact that when designing stablecoins, the three core goals of stability, decentralization, and scalability are often difficult to achieve simultaneously.
1. Stability: The price of stablecoins must remain as stable as possible, avoiding high volatility like cryptocurrencies. Price stability requires strong collateral support or control mechanisms, usually relying on reserves of fiat currencies or assets. However, such support may rely on centralized mechanisms such as bank accounts or fiat currency asset management. This often conflicts with the goal of decentralization.
2. Decentralization: Decentralization means that the operation and management of the stablecoin system should not rely on centralized entities or institutions as much as possible, avoid reliance on single points of failure or regulatory intervention, and ensure censorship resistance and system autonomy. Maintaining decentralization usually means that the operation of stablecoins must be based on smart contracts and trustless mechanisms, but this often weakens stability.
3. Scalability: Scalability refers to the ability of stablecoins to expand rapidly as demand increases to meet the needs of a large number of users while maintaining low transaction costs and high transaction speeds. This usually relies on centralized off-chain systems for efficient management and supply adjustments, but this undermines the goal of decentralization. Alternatively, decentralized stablecoins are limited in scalability by on-chain performance, transaction speed, and cost because they run on blockchains.
Trilemma Case:
USDT and USDC: These centralized stablecoins have high stability and scalability, but are highly dependent on the operations of centralized entities and have lost their decentralized properties.
DAI: Maintains relative stability and decentralization through over-collateralization of decentralized cryptocurrencies, but in order to maintain security, it requires a high collateral ratio, resulting in limited scalability and difficulty in quickly responding to market demand.
3.2 Core objectives and implementation steps of the Endgame plan
In October 2022, MakerDAO founder Rune Christensen first proposed the Endgame plan. The launch of this plan stems from a deep reflection on the "trilemma" of stablecoins and the governance complexity faced by MakerDAO, and aims to gradually achieve the goal of DAI supply reaching 100 billion.
Endgame project core goals:
Transform DAI and MKR: Launch new tokens (NewStable and NewGovToken) to replace the existing DAI and MKR.
Introducing SubDAOs: Split MakerDAO into multiple SubDAOs, each with its own governance structure and tokens for developing applications in different areas, such as DeFi products and real-world asset (RWA) support.
Endgame has four main phases:
1) Release season (starting in summer 2024)
New Brand Launch: Showcasing MakerDAO’s new brand and tokens (NewStable and NewGovToken).
Token launch: Users can upgrade existing DAI and MKR to new tokens.
Locked Staking Engine (LSE) and NewBridge launch: driving long-term governance participation and cross-chain transfers.
SparkDAO and SPK token launch: The first child DAO of a DeFi product enters the market.
2) Scaling up
Launch 6 new sub-DAOs focusing on different areas, such as RWA and games, to promote the expansion of MakerDAO's ecosystem.
3) New Chain
Launch of NewChain: MakerDAO’s own L1 blockchain, used to host core tokens and governance mechanisms, and serve as a hub for cross-chain bridging.
4) Endgame
Permanently lock in MakerDAO’s governance mechanism to create a self-sustaining decentralized financial ecosystem.
3.3 Launch of Dual Stablecoin Strategy
A key step in the Endgame plan is to introduce a dual stablecoin strategy, that is, to solve the stablecoin "trilemma" through two stablecoins in different directions. In order to deal with the conflict between decentralization and compliance, MakerDAO proposed two stablecoins, NewStable and PureDai.
NewStable (ie USDS): NewStable focuses on large-scale adoption and integration with traditional financial systems. It mainly uses real-world assets (RWA) as collateral to maintain its value stability, in line with global regulatory requirements, and aims to become a compliant decentralized stablecoin that is more suitable for traditional financial institutions and a wider user base.
PureDai: PureDai pursues a pure decentralized concept. Its core design is to reject any form of centralized collateral and only accept decentralized assets (such as ETH and stETH) as collateral. At the same time, it adopts a floating target price mechanism to allow its price to fluctuate freely according to market supply and demand, rather than being pegged to fiat currencies such as the US dollar, aiming to maximize the purity of decentralization.
In September 2024, MakerDAO officially announced the brand upgrade to Sky, marking an important step in the Endgame plan. The brand upgrade is not only a name change, but also a comprehensive transformation of the protocol in terms of governance structure, token economy and stablecoin system.
4. Controversies and challenges caused by brand upgrading
4.1 The contradiction between centralization and decentralization
In the process of MakerDAO upgrading to Sky, the most heated debate in the community is whether the protocol is still faithful to its core value of decentralization. In the process of upgrading to Sky, MakerDAO introduced two new stablecoins: USDS and PureDAI, which represent the two paths of decentralization and compliance development respectively.
This dual-currency strategy is partly a response to different needs within the DeFi ecosystem. However, it also exposes the tension between MakerDAO’s expansion and decentralization. On the one hand, the design of USDS makes MakerDAO easier to integrate with traditional financial institutions, thus promising large-scale adoption; on the other hand, PureDAI pursues extreme decentralization to attract users who adhere to blockchain fundamentalism.
4.2 Controversy over the Freeze Function
The freeze function introduced by USDS has sparked widespread criticism. The freeze function gives the protocol or related governance entities the power to freeze user funds under certain circumstances. Supporters believe that this is necessary to ensure compliance and prevent illegal activities. However, critics believe that this design completely goes against the original intention of decentralization, especially in the DeFi world, where decentralization has always been regarded as the most core value.
The account freezing function in the traditional financial system is usually used to respond to criminal behavior or major risks, while introducing this function into blockchain stablecoins means that users' assets may be frozen without their consent. The original intention of cryptocurrency is to give users full control over their funds, and this design has sparked heated discussions in the community about the future direction of decentralized finance.
4.3 Regional Blockade and Weakened Anti-censorship Capabilities
In addition to the freezing function, the implementation of the Sky protocol also introduced geographical restrictions, prohibiting users in certain regions from accessing the protocol. Specifically, USDS and the Sky protocol restrict users to their region, prohibiting users from bypassing these restrictions through tools such as VPNs.
This move was seen as a sign that MakerDAO had compromised with regulatory pressure, causing many users to question whether it had reduced its anti-censorship capabilities and deviated from its decentralization goals in order to cater to regulation.
4.4 Community Split
In addition to technical and conceptual disputes, the brand upgrade has also caused a split within the MakerDAO community. Decentralization advocates tend to support PureDAI, a stablecoin that is fully decentralized, has no peg to real-world assets, and has no governance functions. However, the launch of USDS means that the focus of the protocol has shifted towards the needs of the traditional financial system, leading to strong divisions within the community.
For many loyal MakerDAO community members, PureDAI is the future they hope to see because it is more in line with the original decentralized ideal. However, another group of members is more pragmatic and believes that in order to expand the market and attract the participation of traditional financial institutions, a certain compromise must be made between compliance and decentralization. This divergence of views not only affects the unity of the community, but may also have a profound impact on the future development direction of the protocol.
5. Sky's prospects and the future of the Endgame plan
5.1 Sky’s Development Potential
With the upgrade of MakerDAO to Sky and the introduction of new tokens USDS and governance tokens SKY, the development direction of the protocol has become more diverse and complex. This brand upgrade marks that MakerDAO has retained its pursuit of decentralization while moving closer to the traditional financial system. This dual-track strategy not only provides MakerDAO with more market opportunities, but also lays a solid foundation for its future development.
USDS will also attract more DeFi users with its yield function. As a decentralized protocol, Sky will provide savings rates and other DeFi products, enabling users to earn returns by holding and using USDS. This mechanism helps increase user stickiness and increase the long-term holding of USDS, thereby driving the growth of its market value.
Although USDS has great growth potential, it will also face fierce competition from centralized stablecoins such as USDT and USDC. These centralized stablecoins have already occupied the vast majority of the market share. How to stand out in the fierce competition will be one of the main challenges that Sky Protocol needs to face in the future.
5.2 Expansion of SubDAO Ecosystem
Another core part of the Endgame plan is to expand the Sky ecosystem by introducing SubDAOs. These SubDAOs will focus on different verticals, such as lending, gaming, real world assets (RWA), etc., to help the Sky protocol achieve diversified development. Each SubDAO will have its own governance token and economic system to drive innovation in its respective field.
The first sub-DAO launched is SparkDAO, which focuses on expanding the lending capabilities of the protocol through innovative DeFi products such as SparkLend. With the continuous increase of SubDAOs, Sky Protocol will form a decentralized ecosystem that supports independent development in different fields.
This SubDAO architecture not only enhances the flexibility of the Sky protocol, but also provides diverse options for different investors and users by dispersing governance and risk. The challenge of future governance models is how to balance decentralization with efficient decision-making. As the scale of the protocol expands, the complexity and transparency of governance may become a bottleneck that hinders its further development.
5.3 The future of the Endgame plan
Since the Endgame plan was proposed in 2022, it has gradually moved from concept to reality. In the future, the launch of multi-chain architecture and NewChain will be another focus of the Endgame plan. As an independent L1 blockchain of MakerDAO, NewChain carries the core tokens and governance mechanism of the protocol, which will make MakerDAO no longer dependent on the single Ethereum network and improve the scalability and operational efficiency of the protocol.
The ultimate goal of the Endgame plan is to build a stable and sustainable DeFi ecosystem through a multi-level decentralized architecture. In the fourth phase of the plan, the endgame phase, MakerDAO's core governance mechanism will be permanently locked to ensure the decentralization and stability of the system. This means that the Sky protocol will become an autonomous system without centralized control, thus realizing the vision of complete decentralization.
In short, the Endgame plan has drawn a promising development path for MakerDAO. From the implementation of the dual stablecoin strategy to the expansion of the sub-DAO ecosystem, to the reform of the governance model, MakerDAO must cope with the multiple challenges brought by community division, technical complexity and regulatory pressure while maintaining innovation. However, the implementation of the Endgame plan will enable MakerDAO to occupy a more advantageous position in the future DeFi field, becoming a more resilient and scalable decentralized financial ecosystem, and providing more diversified and flexible solutions for the global financial system.