Ninety million behind ten billion

Moody's Ratings has assigned Sky Protocol, the decentralised lending system behind the USDS and DAI stablecoins, a B3 rating with a stable outlook, Sky Frontier Foundation, which supports the protocol, said on Wednesday. It is the first rating Moody's has issued on any stablecoin protocol, according to the foundation's announcement, issued from Grand Cayman. B3 sits six notches below investment grade on Moody's scale, in the speculative band. Sky, which was called MakerDAO until 2024, now holds the same position on both of the largest agencies' scales: S&P Global Ratings has rated it B-, the equivalent grade, since August 2025, and affirmed that rating on 1 October.

The rating is a long-term counterparty risk rating, and the agency's report was blunt about where the risk sits. Sky had about $90m in tangible common equity against roughly $10bn of tangible managed assets as of September, according to Bitcoin.com News, which quoted from the report; Moody's described that capital position as a "material credit weakness". By our arithmetic, that is a capital ratio of about 0.9 per cent. A bank holding that little equity against its assets would be far below regulatory minimums, though Sky is not a bank and is not regulated as one.

The agency gave the protocol credit for its record. "The B3 CRR reflects Sky Protocol's solid, though limited, operating history in decentralized finance, the relatively liquid nature of a material portion of its assets, low historical credit losses, and solid profitability relative to its asset risk," Moody's wrote, according to Bitcoin.com. Sky has recorded about $15m of cumulative losses since 2020, and roughly 45 to 50 per cent of its assets are stablecoins and tokenised money market funds, with about another 25 per cent in loans backed by cryptocurrencies, Bitcoin.com reported. Those reserves look different from the Treasury bills, repo and, at Tether, precious metals that back the largest fiat-backed stablecoins: a large part of Sky's liquid book is other issuers' stablecoins.

Then came the offset. "These positives are counterbalanced by Sky Protocol's very low capitalization, confidence-sensitive stablecoin liabilities, and the inherently elevated operational, governance, legal, and regulatory risks associated with its DAO structure, smart-contract infrastructure, and permissionless stablecoin model," the agency said. Sky has no audited financial statements, no formal incorporation and no employees, officers or directors, Bitcoin.com reported. If losses exceeded the protocol's capital, it would mint and try to sell new governance tokens; if that failed, USDS and DAI holders could be written down.

Moody's set out how the rating would move. "Sky Protocol's CRR could be upgraded if capitalization (as measured by TCE to TMA) increases and we expect it to remain above 2.5%; while it continues to maintain current levels of profitability, liquidity, and asset risk; or should evidence develop of substantial incremental mitigants to operational, governance, legal, and regulatory risks," the report said, according to Bitcoin.com. A fall below 0.5 per cent, consecutive quarterly losses or weaker liquidity could lead to a downgrade.

Those thresholds are some distance from where the protocol is aiming. Sky's governance objective is $150m of tangible common equity over the medium term, according to Bitcoin.com. By our arithmetic, at today's balance sheet of about $10bn that would be a ratio of 1.5 per cent, short of the 2.5 per cent Moody's says it wants to see sustained; clearing that line at the current size would take about $250m, roughly $160m more than Sky holds. The downgrade line is closer. At constant assets, 0.5 per cent is $50m, so about $40m of losses would take it there, by our arithmetic, a little under three times the cumulative losses Sky has recorded since 2020.

S&P's review six days earlier reached a similar place. The agency affirmed its B- rating with a stable outlook on 1 October, ChainCatcher reported, putting Sky's reserves at about $92m against the $150m target and the combined supply of USDS and DAI at $9.5bn, up from $7.7bn in August 2025. About half of that was backed by USDC and tokenised money market funds, and over-the-counter lending had grown to about $1bn, or roughly 10 per cent of assets. When it first rated the protocol, in August 2025, S&P put Sky's risk-adjusted capital ratio at 0.4 per cent and said an upgrade within 12 months was unlikely, The Block reported at the time.

The foundation presented the second rating as a milestone rather than a verdict. "We appreciate the rigor that Moody's brought to its review of Sky Protocol and the independent assessment it has provided," said Greg Feibus, its global head of capital markets. The release said Sky's governance had moved to a "Stage 2" buyback and reserves framework, under which the protocol keeps a portion of its net revenue to build reserves toward a minimum target, that building those reserves would take time, and that the protocol's long-term ambition was an investment-grade rating. It says the foundation does not control the protocol or its governance processes. The release was reissued with a correction to its headline.

The audience is institutional. USDS had about $7.0bn in circulation on Thursday, making it the third-largest dollar stablecoin after Tether's USDT and Circle's USDC, according to DefiLlama data. The two ratings give allocators a familiar scale on which to place it. On that scale, both agencies have now placed it at the same point, and both single out its thin capital.