Sky (SKY) token replaces MKR as the protocol's governance token

Decentralized finance (DeFi) lending platform Sky is planning to finalize its upgrade from Maker by replacing its governance token and enabling staking.

A proposal to this effect has been put forth by Sky co-founder Rune Christensen. It is currently open for discussion on the platform's decentralized autonomous organization (DAO) forum.

The proposal, which was posted on May 1 and is slated to be voted on May 9, would see the Sky (SKY) token take over the Maker (MKR) token as the protocol's governance token.

If the DAO accepts, the change would be slated to take place around May 15 to May 19 and downgrading from SKY to MKR would also be disabled.

"This is a huge milestone for Sky that I fully support," Christensen said in response to the proposal.

He adds that allowing users to downgrade from SKY back to MKR has been a "key limiting factor preventing exchanges from adopting SKY."

"With this change, exchanges are likely to move faster in quickly adopting SKY without concerns about fracturing liquidity."

Penalties on MKR holders who are slow in switching to SKY have also been proposed.

According to the proposal, a 1% delayed upgrade penalty would apply to all MKR to SKY upgrades starting September 18, increasing every three months. Users hit with a delayed upgrade penalty will also obtain fewer SKY tokens.

"The goal is to discourage MKR holders from waiting to upgrade to SKY in order to collect more interest on their MKR, which would in turn leave less income for the protocol to use for buying back SKY and paying out SKY Staking Rewards," Christensen said.

Sky staking, temporary pause on liquidations

The most important change would be to see SKY staking enabled as part of the changes to the protocol.

"This will be the final step in transitioning Sky to a fully self-sustainable ecosystem, where a portion of the income the protocol generates is used to pay out staking rewards in SKY to those who contribute to securing the network," Christensen said.

Rewards for its decentralized stablecoin, USDS, which are based on the income the Sky Protocol generates, will be enabled two or three weeks after the upgrade of the governance contract, with a splitter rate of 50%.

"Getting past the full upgrade of MKR to SKY is one of the last pieces missing before Sky can transition to 0 fixed costs at the end of 2025, which will ensure an even greater portion of the income the protocol generates goes to the benefit of SKY buybacks, or SKY Staking Rewards."

SKY liquidations will also be temporarily disabled while the one-way MKR to SKY transition is still in its early stages.

"This is necessary to prevent risk from price manipulation to the SKY and MKR price while the transition is happening," Christensen said.

"When SKY market liquidity is restored, Sky Governance will lift the liquidation freeze and move risk parameters to long-term targets."

Maker rebranded to Sky last August but after confusion and negative feedback, Christensen considered going back to the original Maker name just months later.

However, a November poll saw 79% of tokenholders vote to keep the Sky brand as the back end protocol brand with no further changes.