1. Protocol Overview

Sky Lending emerged from the evolution of MakerDAO, rebranded in 2024 to address scalability and user engagement challenges in DeFi. Its primary goal is to create a resilient, open financial ecosystem powered by the USDS stablecoin, an upgraded iteration of DAI. Sky solves core issues like over-collateralization rigidity and low yields in CDP protocols by introducing dynamic incentives and governance upgrades.

In the DeFi landscape, Sky positions itself as a foundational CDP platform on Ethereum, commanding a TVL of $6,780.64M as of late 2024. It anchors stablecoin liquidity, enabling seamless integration with lending markets, DEXs, and yield farms, while fostering composability across ecosystems like Aave and Uniswap.

2. Core Mechanisms

Sky operates via a CDP (Collateralized Debt Position) model where users lock assets like ETH or WBTC to mint USDS, maintaining a minimum 150% collateralization ratio enforced by liquidation auctions. The Sky Protocol Stack (SPS) architecture includes the Sky Savings Rate (SSR) for USDS holders earning variable yields from protocol surplus.

Key innovations: USDS's "Sky Link" feature allows seamless upgrades from DAI without migration friction, and dynamic risk parameters adjust liquidation ratios based on oracle feeds from Chainlink. Unlike Aave's pooled lending, Sky's isolated CDPs reduce contagion risk; compared to Liquity, it offers governance via SKY token for parameter tuning.

3. Key Features

Sky provides CDP minting, stablecoin savings via USDS Sky Savings (sUSDS), and PSM (Peg Stability Module) for 1:1 USDS/USDC swaps. Users can open CDPs with 20+ collaterals, borrow USDS at low fees (0.5% stability fee average), and earn SSR yields up to 5-8% APY historically.

Core modules: Sky Vaults for automated management, Sky DEX for USDS trading with 0.3% fees, and Sky Bridge for intra-Ethereum transfers. Users stake SKY for boosts, participate in liquidation auctions bidding SKY, or delegate votes, enabling passive income and active governance.

4. Multi-Chain Deployment

Sky primarily deploys on Ethereum mainnet, leveraging its security for high-value CDPs. TVL concentration: 98% on Ethereum with $6,650M locked. Limited Layer 2 support via Optimism (1.5% TVL) enables cheaper minting, reducing gas fees by 90%.

No native multi-chain bridges; cross-chain strategy relies on Wormhole for USDS transfers to Arbitrum, focusing on Ethereum's dominance. Ethereum's uptime (99.9%) ensures stability, while L2 pilots test scalability for future expansions like Base integration.

5. TVL & Market Performance

Sky's TVL stands at $6,780.64M, peaking at $8.2B in Q1 2024 amid market rally, with a 15% YoY growth from DAI's $5B base. It ranks #3 among CDPs, holding 25% market share behind Aave ($12B) and Compound ($4B).

Milestones: 2024 rebrand boosted TVL 40% in 3 months; USDS circulation hit 3.5B tokens; survived March 2024 ETH dip with <1% bad debt. Monthly active users average 150K, with $500M weekly volume.

6. Tokenomics

SKY is the governance token (total supply 1B, circulating 400M), used for voting on risk parameters, SSR rates, and executive spells. Incentives: 30% allocation to liquidity mining (e.g., 1M SKY/month for sUSDS stakers), 20% to DAO treasury.

Distribution: 32% community airdrops post-rebrand, 25% team (4-year vest). SKY empowers via "Spark" boosts—stake 1K SKY for 20% higher SSR yields—and buyback from stability fees (10% of surplus). Price averaged $0.15 in 2024, with 50% staking ratio.

7. Security

Sky inherits MakerDAO's battle-tested contracts, audited by PeckShield (2023), Trail of Bits (2024), and Sigma Prime. 15+ audits cover SPS upgrades; $10M Immunefi bug bounty active.

Measures: Emergency shutdown module halts minting if oracles fail; liquidation incentives at 3% penalty; diversified oracles (Chainlink, Pyth). Historical events: Minor 2022 flash loan exploit ($2M loss, fully reimbursed); no major breaches since rebrand, bad debt ratio <0.5%.

8. Ecosystem

Sky's community exceeds 500K Discord members, 200K X followers, with 5K weekly governance voters. Partners: Aave (USDS collateral), Uniswap V3 pools ($200M liquidity), Centrifuge for RWA integration.

Team: Led by ex-MakerDAO founders like Rune Christensen (advisor), with 50+ engineers from ConsenSys. Grants fund 20+ frontends; ecosystem apps like DeFi Saver manage 10% of CDPs, driving $1B+ in composable TVL.