Author: DLNews
Compiled by: Deep Tide TechFlow
Deep Tide Guide: S&P gave Sky's USDS and DAI a B- rating in August last year, placing them on the same level as the government bonds of the Democratic Republic of the Congo, which fall into the junk bond category. To attract institutional investors, Sky and its subDAO Spark are repackaging debt, isolating high-risk yield sources, and launching junior capital vaults. Credit ratings are becoming a key threshold for DeFi protocols to attract traditional financial capital.
- Sky aims to improve its credit rating.
- This DeFi lender received a B- rating from S&P Global Ratings in August.
- Credit ratings are becoming increasingly important for DeFi protocols.
Sky and its subDAO Spark will repackage their products, minimize exposure to risky yield sources, and launch new capital vaults to enhance the credit rating of Sky for potential institutional investors.
In August, S&P Global Ratings gave this decentralized finance lender a B- credit rating, placing the protocol's USDS and DAI stablecoins on the same level as the government bonds of the Democratic Republic of the Congo.
As the protocol seeks to attract more institutions, their goal is to improve this rating.
"We have reached a dominant position in the current market. We need to grow into TradFi," Sam MacPherson, CEO of Phoenix Labs, the core development team behind Spark, and a core contributor to Sky, told DL News in an interview at EthCC in Cannes.
"We are very focused on improving the weak points that more traditional institutional participants are concerned about," he said.
As blockchain technology becomes more accepted and adopted by the world's largest financial institutions, capital from the traditional financial world is pouring into DeFi.
DeFi protocols want to attract these new investors, and a good way to do this is to get a strong score from a respected rating agency.
Credit ratings indicate to investors the likelihood of a debt issuer defaulting on loans or other debt instruments due to bankruptcy. They are crucial for traditional financial companies because they help manage risk in financial markets.
High-yield bonds, often referred to as junk bonds, are any debt securities rated below BBB- by S&P Global Ratings or Fitch Ratings.
Senior and Junior
The first thing Sky and Spark plan to do is repackage the debt backing the USDS stablecoin.
Sky users can mint USDS by depositing crypto assets such as Ethereum and stablecoins into Sky Vaults, which use these deposits to earn yield. Users can then exchange USDS for sUSDS, the interest-bearing version of the token, through Spark. Users cannot mint more USDS than the value of their collateral, meaning the loans are overcollateralized.
"There will be USDS, which may have some exposure to high-yield products, but it will be packaged in a way that rating agencies are comfortable with the exposure," MacPherson said.
Meanwhile, Spark plans to isolate riskier, higher-yield assets into junior risk capital vaults in the second quarter.
"This will be a first-loss type of vault. Higher risk, but also higher returns," MacPherson said.
This type of structured financial product is common in traditional financial markets.
When borrowers repay debt, lenders holding so-called senior products are paid first, but typically with lower returns. This makes the products less risky and popular with conservative investors.
On the other hand, junior products are riskier because they are paid last, but offer higher yields to compensate for potential losses.
Additionally, MacPherson said that Sky and Spark have minimized exposure to USDe, a synthetic dollar issued by Ethena, another DeFi protocol.
S&P Global Ratings previously assigned a 1250% risk weight to USDe in its assessment of Sky due to the complex mechanism used to maintain the asset's value.
Rating Competition
Sky is not the only crypto project paying for credit ratings.
In 2022, Compound Finance's institutional arm, Compound Prime, also received a B- rating from S&P Global Ratings for its senior unsecured debt.
In addition to traditional rating agencies like S&P Global Ratings, Moody's Ratings, and Fitch Ratings, several crypto-native rating agencies are emerging.
Platforms like Credora provide credit analysis and risk assessment for DeFi lending, although the ratings they offer do not yet carry the same weight with investors as those from traditional agencies.
As of March 2026, Spark's stUSDS Vault has received a B+ rating, equivalent to BB- from traditional rating agencies.
For DeFi protocols, obtaining these ratings is "very important," MacPherson said.
"There is a lot of questionable underwriting going on right now, and there really needs to be a check on major vault lending markets," he said.
Updated, April 9: This article has been updated to distinguish between references to Sky and Sky subDAO Spark.
