Sky (formerly MakerDAO) Savings Protocol Slumps to $5M Loss as USDS Interest Payments Wipe Out Profit

DeFi savings protocol Sky (formerly MakerDAO) is reporting a first quarter loss of $5 million, a stark contrast to the previous quarter’s profit of $31 million, according to a report by Steakhouse Financial, a contributor to the protocol.

The 102% surge in interest payments to users for holding stablecoins, part of the protocol’s broader strategy to integrate the new stablecoin USDS, is largely to blame for the stellar shift to a net loss.

The rapid expansion of USДС is part of a broader endgame plan, led by Sky co-founder Rune Christensen, to transform the protocol into a more decentralized and resilient system.

However, while the goal is to attract new users, it’s unclear whether USDS has significantly expanded the protocol’s footprint.

“Sky’s savings rate remains at 12.5%, which is still very high compared to other parts of the market and has seen a large influx of funds into the protocol despite the low rates,” Christensen told CoinDesk in a Telegram message. “Many investors still chose to stay when we lowered the rate to 4.5% in February.”

The situation highlights a double-edged sword for the protocol, one of the first decentralized finance applications that emerged on Ethereum in 2017.

Similar to a traditional bank, Sky needs to lend to others at a rate higher than what it pays to depositors. But offering higher interest rates without a corresponding increase in USDS demand is putting a strain on the protocol’s profitability, said PaperImperium, a governance contact at blockchain research and development firm GFX Labs.

“USDS is a huge drag on yields. We're getting good yield on DAI but no yield on USDS, which is getting soaked up by institutions.”

It’s part of what broader narrative that has been developing throughout 2025.

As part of the endgame plan, Sky rebranded from MakerDAO and launched USDS in August to attract a different user base than DAI.

The newer stablecoin is designed to be more compliant with regulatory and financial reporting requirements, catering to hedge funds, family offices and other sophisticated institutional investors seeking exposure to decentralized finance.

But it’s still unclear whether USDS has attracted a large number of new users.

Investors can obtain different returns on USDS and DAI: USDS pays a yield of 4.5%, while DAI offers 2.75%.

Many investors have exchanged DAI for USDS, meaning Sky needs to pay more to users who were previously satisfied with lower or even no yields, PaperImperium stated.

According to the report, since the beginning of this quarter, the total supply of USDS and DAI has increased by 57%.

But a significant portion of this growth comes from synthetic dollar protocol Ethena, which has been investing over $450 million into stacked USDS and passed the yields onto users staking its own stablecoin USDe.

In the past week, Ethena has shifted part of its reserves from USDS to USDtb—a stablecoin backed by BlackRock’s dollar institutional digital liquidity fund (BUIDL).

This move will decrease the circulating supply of USDS. But it may also benefit Sky by decreasing the amount of interest the protocol needs to pay.