On May 1, the decentralized finance (DeFi) lending platform Sky put forth a significant proposal aimed at finalizing its transition from the Maker ecosystem. This proposal suggests the replacement of the Maker (MKR) governance token with the Sky (SKY) token and the introduction of staking features.
Currently under consideration by Sky’s decentralized autonomous organization (DAO), the proposal indicates that if accepted, the transition is scheduled to occur between May 15 and May 19. Once implemented, the current option to downgrade from SKY back to MKR will no longer be available.
Sky co-founder Rune Christensen emphasized the importance of this change, describing it as a “huge milestone”. He noted that the previous ability for users to downgrade from SKY to MKR has been a major obstacle in attracting exchanges to adopt SKY as a legitimate governance token. “With this change, exchanges are likely to move faster in quickly adopting SKY without concerns about fracturing liquidity,” he stated.
Additionally, the proposal outlines potential penalties for MKR holders who are slow to transition to SKY. A 1% penalty is suggested for all MKR to SKY upgrades beginning September 18, which will increase over time. Users affected by this penalty will also receive fewer SKY tokens upon conversion.
Introducing Staking and Temporarily Pausing Liquidations
Christensen highlighted that one of the most impactful changes in the upgrade would be enabling staking for the SKY token. The staking rewards for the decentralized stablecoin, USDS, which derive from the income generated by the Sky Protocol, are expected to be activated two to three weeks following the governance contract upgrade. The proposed split for this reward system is set at 50%.
Moreover, Christensen noted, “Completing the upgrade from MKR to SKY is one of the last pieces required for Sky to transition to zero fixed costs by the end of 2025, which will significantly enhance the benefits available for SKY buybacks and staking rewards.” To ensure stability during this transition phase, liquidations on SKY will be temporarily paused.
“This initiative aims to mitigate risks from potential price manipulation of SKY and MKR during the transition period,” Christensen added. Once the market liquidity for SKY is reestablished, the governance framework will lift the liquidation freeze and revise risk parameters according to long-term targets.
While Maker underwent a rebranding to Sky in August last year, the decision was met with mixed reviews, prompting Christensen to consider reverting to the original Maker name. Nevertheless, a subsequent poll in November showed that 79% of token holders preferred retaining the Sky identity without further changes.
Related: Sky Doubles Down on Token Overhaul: Making MKR Unusable, Launching SubDAOs
As the DeFi space continues to evolve, the implications of Sky’s proposed changes may usher in a new era of governance, staking, and market engagement that could redefine the participant dynamics in decentralized finance.
