DeFi savings protocol Sky (formerly MakerDAO) posted a $5 million loss in Q1 2025, a stark contrast to its $31 million profit in the previous quarter. The loss stemmed from incentives to use the new stablecoin USDS over DAI, causing interest payments to surge by 102%. While USDS aims to attract sophisticated investors, its user base growth is uncertain, and high rates are straining profitability.

Below is the original content (edited for clarity):

• DeFi savings protocol Sky (ex-MakerDAO) recorded a $5M Q1 loss, a dramatic drop from its $31M profit last quarter.

• Interest payouts spiked 102% due to incentives pushing users toward USDS instead of DAI.

• Despite USDS’s launch to attract institutional players, it’s unclear if it significantly expanded Sky’s user base.

Sky co-founder Rune Christensen (Photo: Trevor Jones)

According to a report by contributor Steakhouse Financial, Sky’s Q1 loss was driven by more than doubling interest payments to token holders. This contrasts sharply with Q4 2024’s $31M profit.

The surge in payouts (up 102%) resulted from the protocol’s push to incentivize users to adopt its newer stablecoin, USDS, over the legacy DAI.

"Sky’s savings rate was held at 12.5%—far above market rates—which attracted heavy inflows," said Sky co-founder Rune Christensen via Telegram. Even after cutting the rate to 4.5% in February, many investors stayed, he noted.

For Sky, one of Ethereum’s earliest DeFi apps (launched in 2017), this strategy is a double-edged sword. Like a traditional bank, Sky must lend at higher rates than it pays depositors to stay profitable.

But without matching demand for USDS, the high rates are hurting the bottom line. "USDS is a major drag on earnings," said PaperImperium, governance liaison at GFX Labs. "DAI makes money; USDS doesn’t."

USDS is central to Sky’s "Endgame" overhaul, led by Christensen, to decentralize and future-proof the protocol. Launched in August 2024 alongside Sky’s rebranding from MakerDAO, USDS was designed to appeal to regulated entities like hedge funds and family offices.

Yet it’s unclear if USDS has brought in new users. The token offers a 4.5% yield vs. DAI’s 2.75%, prompting many DAI holders to migrate—forcing Sky to pay more to users who once accepted lower returns.

While total USDS + DAI supply grew 57% this quarter, much of this came from synthetic dollar protocol Ethena, which parked over $450M in USDS to back its own stablecoin, USDe.

Recently, Ethena shifted part of its reserves from USDS to BlackRock’s USDtb (backed by BUIDL). This reduces Sky’s interest burden but also shrinks USDS circulation.

1. Profitability Pressure: Sky’s aggressive USDS promotions backfired, turning Q4’s $31M profit into a Q1 $5M loss.

2. Institutional Adoption Unproven: USDS hasn’t clearly attracted its target audience of sophisticated investors.

3. Ethena’s Role: The protocol’s reliance on Ethena’s deposits highlights fragility in USDS demand.

DeFi savings protocol Sky (formerly MakerDAO) posted a $5 million loss in Q1 2025, a stark contrast to its $31 million profit in the previous quarter. The loss stemmed from incentives to use the new stablecoin USDS over DAI, causing interest payments to surge by 102%. While USDS aims to attract sophisticated investors, its user base growth is uncertain, and high rates are straining profitability.

Below is the original content (edited for clarity):

• DeFi savings protocol Sky (ex-MakerDAO) recorded a $5M Q1 loss, a dramatic drop from its $31M profit last quarter.

• Interest payouts spiked 102% due to incentives pushing users toward USDS instead of DAI.

• Despite USDS’s launch to attract institutional players, it’s unclear if it significantly expanded Sky’s user base.

Sky co-founder Rune Christensen (Photo: Trevor Jones)

According to a report by contributor Steakhouse Financial, Sky’s Q1 loss was driven by more than doubling interest payments to token holders. This contrasts sharply with Q4 2024’s $31M profit.

The surge in payouts (up 102%) resulted from the protocol’s push to incentivize users to adopt its newer stablecoin, USDS, over the legacy DAI.

"Sky’s savings rate was held at 12.5%—far above market rates—which attracted heavy inflows," said Sky co-founder Rune Christensen via Telegram. Even after cutting the rate to 4.5% in February, many investors stayed, he noted.

For Sky, one of Ethereum’s earliest DeFi apps (launched in 2017), this strategy is a double-edged sword. Like a traditional bank, Sky must lend at higher rates than it pays depositors to stay profitable.

But without matching demand for USDS, the high rates are hurting the bottom line. "USDS is a major drag on earnings," said PaperImperium, governance liaison at GFX Labs. "DAI makes money; USDS doesn’t."

USDS is central to Sky’s "Endgame" overhaul, led by Christensen, to decentralize and future-proof the protocol. Launched in August 2024 alongside Sky’s rebranding from MakerDAO, USDS was designed to appeal to regulated entities like hedge funds and family offices.

Yet it’s unclear if USDS has brought in new users. The token offers a 4.5% yield vs. DAI’s 2.75%, prompting many DAI holders to migrate—forcing Sky to pay more to users who once accepted lower returns.

While total USDS + DAI supply grew 57% this quarter, much of this came from synthetic dollar protocol Ethena, which parked over $450M in USDS to back its own stablecoin, USDe.

Recently, Ethena shifted part of its reserves from USDS to BlackRock’s USDtb (backed by BUIDL). This reduces Sky’s interest burden but also shrinks USDS circulation.

1. Profitability Pressure: Sky’s aggressive USDS promotions backfired, turning Q4’s $31M profit into a Q1 $5M loss.

2. Institutional Adoption Unproven: USDS hasn’t clearly attracted its target audience of sophisticated investors.

3. Ethena’s Role: The protocol’s reliance on Ethena’s deposits highlights fragility in USDS demand.