Sky (SKY)

Sky watchers quietly got a much-needed update on the intended capital structure at Sky, and the seniority of different parties in the event of insolvency. For a given Star X, losses flow thusly (first loss at top of the list): Star X (fully liquidated) ⬇️ SKY (dilution) ⬇️ Stars Y, Z, etc (clawback of funds) ⬇️ USDS/DAI holders Notably, if SKY is diluted to $0 and the sibling Stars or stablecoin holders bear the final losses, a new supply of gov tokens is supposed to be airdropped to those stakeholders. I like this in principle, although it’s not clear what enforces the wipeout of SKY and handing the keys to creditors. This confirms my earlier intuition that Stars are exposed to the risks of their peers. What I would not have guessed, however, is positioning SKY as junior to solvent Stars. Given how Sky has consolidated the accounting of Stars to date - indicating they view 100% of those assets as owned

stUSDS 23.59% APR, a classic case of lending runs, recommended for newcomers to read and understand: 1/ First, the high interest rate has been maintained for a while. This is due to the lending pool's funds being fully borrowed, causing the interest rate curve to rise. At this point, depositors earn high interest but find it very difficult to withdraw. Under normal circumstances, this design forces borrowers to repay in a high‑interest environment, replenishing the pool so depositors can withdraw. 2/ In this situation, even if a run occurs, if the collateral is problematic—like some synthetic stablecoins that have already incurred losses—the borrower will not repay because the borrowed amount may exceed the collateral's value. However, if the collateral is healthy, this becomes a supply‑demand balance issue. 3/ Sky has released an optimization proposal, mainly consisting of three items: (1) Incentivize the deployment of a stUSDS‑USDS Curve Pool, allowing depositors to exit at a discount even when they cannot withdraw directly. (2) Establish a borrowing market using stUSDS as collateral. (3) Reduce the liquidation LTV from 145% to 120%. Creating the Curve Pool is the smartest move and the most effective in the short term; those in a hurry to withdraw can exit via the secondary market, while those who trust stUSDS can buy in at a discount. Creating a borrowing market with stUSDS as collateral adds another layer; its effect on alleviating the run is limited but can further increase demand for stUSDS. Lowering the LTV threshold tilts somewhat toward borrowers. The official intention is to give borrowers more repayment space and time, but it offers no substantive benefit to depositors and also raises risk. Currently, the pool's capital utilization is still at 98%‑100%. Theoretically, after the Curve Pool launches, the pressure should ease. At this stage, I do not recommend newcomers to get involved; this is merely an analysis. If you are sufficiently familiar with USDS, there may be some opportunities.

After the new proposal was implemented, @SkyEcosystem repurchases $SKY tokens worth $300K daily. The chart below shows the latest repurchase data: in the past week, a total of $1.9M worth of tokens were repurchased. Up to now, @SkyEcosystem has spent $86M to buy back protocol governance tokens, and the amount spent on repurchases exceeds the total circulating market cap of most projects. ( 3, 3 ) @SkyEcosystem @sparkdotfi

Last week, Sky Protocol bought back 40.5 million SKY using 1.9 million USDS. That brings total buybacks to more than 86 million USDS since the program began. https://t.co/K2zW9wlxUC

1/ Good morning Framework, Sky and Layer Zero have raised $37M to build the Y Combinator for Stablecoins: Obex Obex will be accepting teams in Q4 in SF to build new yield bearing stablecoins that will be able to access $2.5Bn from @SkyEcosystem https://t.co/ts9I0Voh1k

Introducing @obexincubator, a new incubator to launch innovative, yield-seeking stablecoin projects on Sky. Sky Governance authorized up to $2.5B USDS to be deployed through Obex into approved teams building the next generation of DeFi stablecoin products. https://t.co/4FVuEOuR1W