Sky and the Rise of DeFi’s Largest Yield-Bearing Stablecoin

While USDS itself functions as Sky Protocol’s (formerly Maker's) core stable asset, its staked counterpart, sUSDS, has emerged as the largest decentralized yield-bearing stablecoin (YBS), overtaking competitors amid the sharp contraction in Ethena’s sUSDe supply following recent market stress. 

This distinction matters. USDS is the base ecosystem money; sUSDS is the yield-bearing instrument for that money. 

Together, they redefine the role of stablecoins in DeFi – not merely as neutral settlement assets, but as instruments that actively compound capital. 

Native yield-bearing stablecoins 

sUSDS belongs to a specific category: onchain native yield-bearing stablecoins. 

Unlike stablecoins sourcing their yield from offchain instruments such as Treasury bills or traditional credit markets, onchain-native YBS derive returns entirely from crypto-native activity. 

Yield is generated through decentralized lending, liquidity deployment, protocol fees, and balance-sheet management executed onchain. 

This makes their return profile structurally different. Returns are decorrelated from traditional interest-rate cycles, but instead emerge from intrinsic onchain demand for leverage, liquidity, and settlement. 

As a result, assets like sUSDS introduce a new, autonomous vector of yield into crypto portfolios. 

More broadly, yield-bearing stablecoins transform money itself. They allow holders to earn a real rate of return – the inflation-adjusted yield on capital – while remaining fully denominated in stable units. 

Yield is directly funded by net protocol income rather than monetary expansion, as seen in conventional protocols stacking models (e.g., Solana). 

Recent regulatory developments have unintentionally accelerated this shift. Under the GENIUS Act, stablecoin issuers are prohibited from paying yield directly to holders. 

Rather than suppressing yield demand, this restriction has redirected capital toward yield-bearing wrappers and staked stablecoins such as sUSDS, which sits at the centre of this dynamic, offering compliant exposure to yield without violating issuer-level constraints. 

Breaking down the sky stablecoin stack 

USDS operates as Sky Protocol’s primary stablecoin and currently represents approximately $5.83bn, or nearly 60% of Sky’s $9.93bn total stablecoin supply. 

The remaining ~$4.10bn still resides in legacy DAI as per Sky's metrics, which continues to phase out following the transition. USDS has expanded at a much faster pace than the broader stablecoin market, posting 86% year-to-date growth versus roughly 50% industry-wide.

USDS functions as a regulatory-aligned, decentralized stablecoin designed to replace DAI as the system’s base unit of account in the ecosystem. 

Users can then deposit USDS into the Sky Savings Rate (SSR) module and receive sUSDS, which is the accrual token that compounds yield over time. The SSR currently stands at 4.00%, and sUSDS supply has grown to approximately $4.90bn, making it the largest decentralized yield-bearing stablecoin. 

(Source: Token Terminal)

Finally, stUSDS is another higher-risk, specialist token designed to provide segregated risk capital for SKY-backed borrowing. It absorbs greater systemic risk in exchange for higher, more volatile returns and currently represents roughly $109mn of ecosystem TVL. Its role is tactical rather than foundational. 

Accounting for DAI in the Sky’s stablecoin stack, USDS and DAI account for roughly 7.2% of total stablecoin transfer volume year-to-date. 

While DAI transfer volume has declined sharply since the transition, USDS activity is accelerating, with transfer volume up +516.15% year-to-date. 

This reflects a gradual migration rather than a collapse: legacy DAI activity is unwinding, letting more room for USDS to scale. 

(Source: Token Terminal)

Inside Sky’s multi-engine revenue model

Sky stands out as one of the strongest real revenue-generating protocols of the ecosystem, with $346.6mn in revenue generated year-to-date, consistently ranking in the top across multiple time horizons. 

While revenue generation spans multiple venues – from debt interest and liquidations to yield-generating strategies – two engines dominate the protocol’s cash flows. 

Sky has progressively expanded its revenue surface through the ‘Stars’ model, layering institutional-grade modules to monetize different forms of on-chain demand while preserving USDS as the ecosystem’s liquidity anchor.

Spark, the inaugural Star Agent, is the clearest example of this strategy in action. Acting as Sky’s lending arm, Spark has become a primary driver of ecosystem revenues, accounting for roughly ~42% of Sky’s total revenue so far this year, according to Dune protocol metrics. 

Spark expands USDS adoption across Ethereum and its L2 ecosystem. When users borrow USDS on SparkLend, they pay interest, a portion of which flows back to the broader Sky Protocol and supports system-wide mechanisms such as the Sky Savings Rate (SSR).  

(Source: Token Terminal)

The protocol has grown to nearly $7.4bn in TVL, establishing itself as one of the largest lending venues in DeFi. 

Beyond direct lending, Spark’s Liquidity Layer actively deploys stablecoin capital across DeFi markets, further compounding returns and reinforcing USDS’s role as a productive monetary base. 

Alongside credit demand, Sky monetizes stablecoin scale through the Peg Stability Module (PSM). End users’ assets collateral swapped into USDS via the PSM do not sit dormant. 

Instead, they become part of Sky’s deployable balance sheet, generating yield through asset transformation and balance-sheet management. As a result, revenue scales directly with assets under management, turning stablecoin adoption itself into a recurring income stream. 

(Source: Token Terminal)

Together, Spark and the PSM anchor Sky’s two largest capital pools and account for ~70% of the protocol revenues over the year, allowing the latter to monetize both stablecoin scale and leverage demand within a single integrated system. 

Additional Star modules, such as Grove, extend Sky’s reach into institutional-grade credit and tokenized real-world assets, reinforcing USDS as a bridge between DeFi and traditional finance. 

This modular design allows Sky to layer new revenue engines without fragmenting liquidity or monetary cohesion. 

Value accrual as protocol cornerstone 

Sky has paired the revenue expansion with explicit value accrual for token holders. 

Through the Smart Burn Engine (BE), a governance-approved buyback programme, protocol surplus revenue accrued in the treasury is used to repurchase SKY tokens on the open market. 

To date, cumulative buybacks exceed 1.49bn SKY tokens ($92.2mn), representing approximately 5.57% of total supply following the effective rollout on 25 Feb.

Recent governance updates have increased daily buyback commitments starting in early November, accelerating repurchases from roughly 100k USDS to ~280k USDS per day. 

This shift partially explains the recent decline in retained protocol revenue, as a larger share of cash flow is now redirected toward direct token holder value.