Defi Savings Protocol Sky published a loss in the first quarter of $ 5 million after interest payments to the token holders more than doubled, according to a report created by Sky contributors from Steakhouse Financial.
The loss is a sharp turn from the previous quarter when Sky, formerly known as Makerdao, recorded a $ 31 million profit. The reason for a 102% increase in interest payments is the decision to incentive the use of the protocol’s newer sky dollar stableecoin (USD) over the existing DAI.
“The sky saving rate was kept very high at 12.5% compared to the rest of the market and ran massive influx” Rune Christensen, co -founder of Sky, Coindesk told Telegram. When Sky started lowering interest rates to 4.5% in February, a lot of investors stuck around, he said.
The situation is a double -edged sword for the protocol, which was among the first cohort of decentralized financing apps to jump up at Ethereum in 2017.
Sky acts as a traditional bank. It has to borrow to others at a speed higher than it pays its savors.
However, offering higher rates of USDS without a similar increase in demand for stableecoin damages the protocol’s profitability, paper empire, Governance Liaison at Blockchain Research and Development Company GFX Labs, told Coindesk over Telegram.
“USDS is a big feature of earnings,” he said. “DAI earns money. Usds, not so much.”
Push against USDS is part of Sky’s so-called Endgame plan, an initiative led by Christensen, aiming to transform the protocol into a more decentralized and elastic system.
No new demand?
When Sky was clearing from Makerdao and launching USDS in August as part of the Endgame, the plan was that the new stableecoin would appeal to another set of users than DAI.
The USDS was designed to better comply with rules and requirements for financial reporting. It was targeted at sophisticated investors such as hedge funds, family offices and other institutions that want to dip their toes in decentralized funding.
But it is unclear whether the USDS has been able to attract a significant number of new users.
The returns that investors can earn on USDS Comapred to DAI are different: USDS will pay 4.5%, while DAI gives 2.75%.
Many investors swapped their DAI for USDS, which means that Sky had paid more to people who were previously happy to earn a lower yield or in many cases no benefit at all, paper empire said.
To be sure, the report said the combined supply of USDS and DAI has risen 57% since the start of the quarter. But a large part of this increase is from ethena, the synthetic dollar protocol. It has stacked over $ 450 million in stacked USDs and transfers the dividend to those who stab their own stableecoin.
Over the past week, Ethena has changed some of its reserves from USDS to USDTB – a stableecoin supported by Blackrock’s USD Institutional Digital Liquidity Fund or Buidl.
The move means there are less USDS in circulation. But it can also benefit the sky by reducing the amount of interest that the protocol must pay.
Read more: Makerdaos Christensen hopes for ‘Determination’ when MKR holders vote on Sky Fire
