CoinClear

USDS / Sky Dollar

6.2/10

MakerDAO's rebranded stablecoin successor to DAI — same collateral engine, new identity, slower-than-expected adoption.

Updated: February 16, 2026AI Model: claude-4-opusVersion 1

Overview

USDS (Sky Dollar) launched in August 2024 as part of MakerDAO's ambitious "Endgame" rebrand to the Sky protocol. Spearheaded by founder Rune Christensen, the transition introduced USDS as the next-generation stablecoin alongside the SKY governance token (replacing MKR). Users can upgrade DAI to USDS at a 1:1 ratio through the Sky.money interface, with the original DAI remaining fully functional.

Under the hood, USDS shares DAI's collateral engine — the same vaults, liquidation mechanisms, and overcollateralization framework power both assets. The backing remains a hybrid of crypto assets (ETH, WBTC, stETH) and real-world assets (primarily U.S. Treasuries). As of early 2026, USDS has accumulated approximately $2-3 billion in circulation, though DAI still retains the majority of combined supply as many users see little incentive to migrate.

The Endgame vision positions USDS as the centerpiece of a modular protocol architecture with "SubDAOs" (now called Stars) handling specialized functions like lending, RWA management, and cross-chain deployment. Whether this ambitious restructuring delivers meaningful improvements over the already-functional DAI system remains an open question.

Peg Stability

Historical Performance

USDS has inherited DAI's mature peg infrastructure and has maintained a tight peg since launch, typically trading within $0.998-$1.002. The Peg Stability Module (PSM) provides hard floor/ceiling through direct 1:1 swaps with USDC, and the Sky Savings Rate (SSR) — the renamed DAI Savings Rate — serves as an interest rate lever to manage demand. No significant depeg events have occurred for USDS specifically.

Mechanism Design

The peg mechanism is identical to DAI's: overcollateralized vault minting, PSM arbitrage with USDC, savings rate adjustments, and liquidation-driven supply contraction. The SSR has been set aggressively at times (above 10% APY) to incentivize USDS adoption over DAI, funded by RWA yields from Treasury holdings. This rate competition has been effective at attracting deposits but raises sustainability questions.

Vulnerability

USDS inherits all of DAI's peg vulnerabilities: USDC dependency through the PSM, potential oracle failures, and liquidation cascade risk in extreme market downturns. The 2020 Black Thursday lessons have been incorporated (improved liquidation mechanisms, flash loan keepers), but the fundamental architecture hasn't changed. A USDC blacklisting of Sky's PSM contract remains a tail risk.

Collateralization

Reserve Composition

USDS is backed by the same collateral pool as DAI within the Maker/Sky protocol. Over 50% of backing comes from RWAs — U.S. Treasuries held through entities like BlockTower Andromeda, Monetalis, and Spark. Crypto collateral includes ETH, WBTC, and stETH in overcollateralized vaults. The PSM holds significant USDC reserves for peg stability operations.

Transparency

On-chain crypto collateral is fully transparent and verifiable in real-time through the Maker/Sky contracts. RWA positions are less transparent, relying on off-chain legal structures, trustee reports, and third-party auditors. The community monitors positions through tools like Makerburn and Dune dashboards. The protocol publishes regular financial reports, but RWA verification inherently requires trust in off-chain entities.

Adequacy

Crypto-backed positions maintain minimum collateral ratios of 130-170% depending on asset volatility. RWA positions are approximately 1:1 given that U.S. Treasuries are near-par assets. The overall system is adequately collateralized under normal conditions, though extreme market stress could compress crypto collateral ratios rapidly.

Security

Smart Contract Risk

The Maker/Sky smart contract system is among the most battle-tested in DeFi, operating since 2017 without a major exploit. Multiple audits from Trail of Bits, PeckShield, and others cover the core contracts. The USDS upgrade introduced new contract modules that have undergone dedicated audits, though new code always carries incremental risk. The Governance Security Module (GSM) provides a timelock on changes.

Operational Risk

Oracle dependency remains a critical factor — price feed manipulation or failure could trigger inappropriate liquidations. The protocol uses median-of-feeds with delayed publication to mitigate this. The transition from Maker to Sky governance introduced operational complexity, with multiple governance frameworks coexisting during the migration period.

Custodian Risk

For RWA-backed portions, custodian risk is meaningful. Real-world assets are held by third-party trustees and custodian banks operating under legal agreements across multiple jurisdictions. A failure of a major RWA custodian could impair USDS's backing. Crypto collateral held in smart contracts carries minimal custodian risk.

Decentralization

Governance Structure

USDS governance transitioned from MKR to SKY token holders, with voting on protocol parameters, collateral types, and rate settings. In practice, governance remains concentrated among a small number of large holders and delegates. Rune Christensen maintains outsized influence over protocol direction through the Endgame framework.

Censorship Resistance

Like DAI, USDS has no blacklist or freeze function in the token contract — a fundamental advantage over centralized stablecoins. However, the protocol's dependency on USDC (via PSM) and RWAs means the underlying collateral can be frozen by third parties. The growing RWA share has further eroded censorship resistance at the collateral layer.

Centralization Concerns

The Endgame rebrand was driven top-down by the founder with limited community enthusiasm. The Star/SubDAO structure adds governance complexity. The heavy RWA reliance means USDS is significantly exposed to traditional financial infrastructure and regulatory jurisdiction, undermining the decentralization thesis.

Adoption

Current Traction

USDS has reached $2-3 billion in supply, growing steadily through SSR incentives and protocol integrations. However, DAI retains the majority of combined supply ($5-6B), and many DeFi users see no compelling reason to migrate. The fragmentation between DAI and USDS has confused users and split liquidity across trading pairs.

DeFi Integration

USDS has been integrated into major DeFi protocols including Spark (the Sky-affiliated lending protocol), Aave, Morpho, and several DEXs. Spark has been particularly aggressive in incentivizing USDS deposits. However, USDS's DeFi footprint remains smaller than DAI's, which benefits from years of established integrations.

Cross-Chain Presence

USDS is available on Ethereum and select L2s, with the Sky protocol planning broader cross-chain deployment through its Star architecture. Cross-chain presence currently lags DAI and is significantly behind USDT and USDC.

Risk Factors

  • Rebrand fragmentation: DAI and USDS coexistence splits liquidity and confuses users, potentially weakening both assets.
  • RWA centralization: Over 50% backing from real-world assets undermines decentralization and introduces counterparty risk.
  • USDC dependency: PSM reliance on USDC creates a critical dependency on Circle.
  • Governance concentration: Despite DAO structure, governance is concentrated among few large holders with founder-driven direction.
  • Migration uncertainty: The Endgame roadmap is complex and ambitious; execution risk is meaningful.
  • Competitive pressure: USDS competes not just with centralized stablecoins but with its own predecessor DAI.

Conclusion

USDS represents an incremental evolution of the proven Maker/DAI system rather than a fundamental innovation. The underlying collateral engine is battle-tested and robust, and the absence of a blacklist function makes USDS more censorship-resistant than centralized alternatives. The aggressive savings rate has attracted meaningful deposits.

However, the rebrand has introduced confusion without yet delivering clear benefits to users. The fragmentation between DAI and USDS weakens both assets' network effects. The growing RWA dependency — inherited from Maker — continues to erode the decentralization narrative. USDS scores 6.2 overall: strong on security (inherited from Maker's track record) and collateralization, but weaker on adoption (still in DAI's shadow) and decentralization (RWA-heavy, concentrated governance).

For users, USDS is functionally equivalent to DAI with a higher savings rate incentive. The choice between them depends on whether the SSR premium justifies the lower liquidity and integration depth.

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