What is USDS? Sky's stablecoin and sUSDS explained

Sky, the protocol formerly known as MakerDAO, issues USDS, a dollar stablecoin backed by overcollateralised loans and stablecoin reserves. Its savings wrapper, sUSDS, pays a rate set by Sky governance.

The USDS stablecoin is the successor to DAI, issued by Sky Protocol after MakerDAO rebranded to Sky in August 2024. It aims to hold $1 and is backed by collateral valued above the USDS in circulation, a mix of stablecoins held in reserve, overcollateralised crypto loans and short-dated debt. About $6.7 billion of USDS existed on 27 September 2026, according to DefiLlama, making it the third-largest dollar stablecoin after USDT and USDC. Holding USDS earns nothing on its own. Depositing it into sUSDS earns the Sky Savings Rate, which was 3.60% on the same day.

DAI still exists alongside it, and the two convert 1:1 in either direction. Together they share one balance sheet, one set of collateral and one governance process, much like a bank that changed its name and printed new notes while keeping the same vault behind both. Most questions about USDS risk are really questions about how Sky runs that balance sheet.

Common USDS terms

From MakerDAO to Sky

MakerDAO launched DAI in 2017 as a stablecoin anyone could mint by locking ETH in a vault and borrowing against it. Over the following years it added USDC reserves, tokenised Treasury bills and other real-world assets, and DAI grew to a peak of about $9.95 billion in February 2022, per DefiLlama. On 27 August 2024 MakerDAO rebranded to Sky and announced USDS and SKY as upgraded versions of DAI and MKR, which went live on 18 September 2024, The Block reported.

The rebrand kept every existing Maker contract running. DAI holders could stay where they were, or upgrade 1:1 to USDS and gain access to the Sky Savings Rate and Sky's token rewards. MKR holders could convert to SKY at 24,000 to 1. Sky later added a Delayed Upgrade Penalty that shaves a growing percentage off late MKR conversions, stepping up every few months since September 2025, according to Sky's developer docs.

USDS supply climbed from zero to about $4.5 billion by April 2025 and peaked near $8.95 billion on 1 April 2026, per DefiLlama, before easing to $6.7 billion by late September. DAI has drifted lower over the same period, to about $4.8 billion.

DAI vs USDS

Rates and supply from Sky's financial dashboard and DefiLlama on 27 September 2026. The gap between the two savings rates is a governance choice, and it's the main reason DAI holders have upgraded.

What backs USDS

Every USDS and DAI is a claim on Sky's Protocol Collateral. Sky's collateral dashboard, run by BA Labs, reports two views of it. Loan coverage counts collateral up to the value of the loans it secures, and it matched the $9.8 billion of circulating USDS and DAI on 27 September 2026. Total collateral, which includes the excess posted by overcollateralised borrowers, came to $16.71 billion.

The mix has moved a long way from DAI's ETH-only origins. Stablecoins, mostly USDC, now make up the largest slice, which ties USDS closely to the issuers of those coins. Onchain and OTC crypto lending carry the overcollateralisation, with $8.59 billion of collateral securing $2.59 billion of onchain loans. Sky says its Treasury bill exposure is held through Sky Agents, with no direct position on the core protocol's books.

How the peg holds

The Peg Stability Module does most of the work. It lets anyone swap USDC for USDS, or USDS for USDC, at exactly 1:1 with fees set to zero by governance. If USDS trades below $1 on the open market, traders buy it and redeem it through the PSM at face value, and if it trades above $1 they mint through the PSM and sell. Sky's own explainer put PSM liquidity at about $4.1 billion in June 2026. Overcollateralised vaults and automated liquidation auctions sit behind that. A borrower's loan is repaid from their collateral before a loss reaches the wider system.

The PSM's depth also means USDS inherits USDC's risk. In March 2023, when USDC briefly lost its peg during the Silicon Valley Bank failure, DAI followed it down because so much of its backing was USDC. Our guide to stablecoin depegs covers that episode and others.

The Sky Savings Rate and sUSDS

sUSDS is USDS deposited into the Sky Savings Rate. It's an ERC-4626 token. Its balance stays fixed while each token's redemption value in USDS rises as the rate accrues. There's no lock-up and no withdrawal queue: holders can redeem to USDS at any time, and on to USDC through the PSM. On 27 September 2026 Sky's savings dashboard showed $4.47 billion in sUSDS at a 3.60% rate, with $13.55 million paid out over the prior 30 days.

The rate is a governance decision, set by SKY holders through executive votes and funded from protocol income: interest paid by borrowers, returns on the Treasury and credit positions, and revenue Sky Agents pass back. It moves with market rates and Sky's earnings. DefiLlama's series for sUSDS shows 8.75% in February 2025, 4.75% in September 2025, and about 3.6% since mid-2026. The rate is variable and past rates don't predict future ones.

The setup resembles a credit union, where the interest members pay on their loans funds the rate paid on members' savings and the board sets how much of that income to pass through. At Sky, borrower interest, returns on reserves and the base rate Sky Agents pay on the USDS they borrow flow into one pool of protocol income. SKY governance votes the share paid out as the Sky Savings Rate, which accrues to sUSDS, and income above that rate stays with the protocol. DAI holders convert to USDS 1:1 before depositing.

Other ways to earn on USDS

• stUSDS: USDS lent to SKY stakers who borrow against their staked SKY. It paid 5.11% on 27 September 2026 on $207 million, and carries more risk than sUSDS because the loans are backed by SKY.
• Sky token rewards: USDS supplied to reward modules earns SPK, GROVE or other agent tokens. The value depends on those tokens' prices.
• Lending markets: USDS can be supplied on SparkLend, Aave and others at variable rates set by borrowing demand. Our DeFi lending guide explains how those rates work.

For context on where these returns sit against other options, how stablecoins make money breaks down issuer income, and USDC yield compares rates across venues.

Spark, Grove and the Sky Agents

MakerDAO's Endgame plan split the protocol into a core that issues USDS and a set of semi-independent units that deploy it. These units were first called SubDAOs, then Stars, and are now called Sky Agents, with the ones that manage capital known as Prime Agents. Each borrows USDS from Sky, invests it, and pays Sky back at a base rate, keeping the spread above it.

Spark is the largest. It runs SparkLend, a lending market with $5.63 billion in deposits on 27 September 2026 according to DefiLlama, along with the Spark Liquidity Layer, which moves USDS into other lending markets and chains, and its own savings products. Grove focuses on institutional credit and tokenised funds. Obex brings outside capital allocators into the system, each borrowing USDS through it. Sky's Prime Agent dashboard showed these balances on 27 September 2026:

Risk capital is the buffer each agent holds to absorb losses before they reach Sky. It's small relative to the balances, about 1.1% for Spark. The quality of each agent's investments carries most of the weight. Every agent's allocations are published onchain, which lets outside analysts model USDS risk position by position.

Can USDS be frozen?

USDS has no freeze function today. Its contract is an upgradeable proxy, and Sky's whitepaper says USDS "may eventually be upgraded to include a freeze function similar to the industry standard of other major RWA-backed stablecoins if the decentralized governance of Sky decides so" (Sky Protocol whitepaper). Adding one would take a governance vote. DAI's contract is immutable and can't be changed, which is why some holders who prize censorship resistance have stayed in DAI.

Fiat-backed coins work differently. Circle and Tether can freeze individual addresses today, and PayPal's PYUSD, covered in our PYUSD explainer, has the same ability through Paxos. For institutions, a freeze function can be a compliance requirement and a reason to hold a coin; for others it's a reason to avoid one. USDS currently sits between the two, with the option open.

How USDS compares with other stablecoins

Supply figures from DefiLlama. A few smaller, unrelated tokens also trade under the USDS ticker, including Sperax USD on Arbitrum. The contract address is the reliable way to confirm which one a wallet holds. For a wider ranking by reserve quality, see our guide to the safest stablecoins.

Risks of USDS and sUSDS

S&P Global Ratings assigned Sky Protocol a B- issuer credit rating with a stable outlook on 7 August 2025, citing a high concentration of depositors, centralised governance with high reliance on the founder, weak risk-adjusted capitalisation of 0.4% as of 27 July 2025, and high regulatory uncertainty for decentralised protocols (S&P Global). The rating covered the credit risk of USDS and sUSDS as liabilities of the protocol.

• Stablecoin dependence: more than half the backing sits in other stablecoins, mainly USDC. A USDC depeg passes straight through to USDS, as it did to DAI in March 2023.
• Collateral and liquidation risk: crypto loans rely on auctions clearing in a crash. On Black Thursday in March 2020, MakerDAO auctions sold about $8.3 million of ETH collateral for zero bids, leaving bad debt the protocol covered by minting and selling new MKR (Glassnode).
• Agent and credit risk: Sky Agents invest in credit, lending markets and tokenised funds, with thin first-loss buffers relative to their balances.
• Governance risk: SKY holders set the savings rate, collateral rules and, potentially, a freeze function. S&P described governance as highly centralised in its 2025 rating.
• Smart contract risk: USDS, sUSDS and the PSM are upgradeable contracts, and a bug or bad upgrade could affect balances.
• Rate risk: the Sky Savings Rate is variable and has fallen from 8.75% to 3.60% since early 2025.
• Regulatory status: S&P flagged high regulatory risk from the uncertain treatment of DeFi protocols and DAOs, and USDS has no licensed issuing company behind it, which can limit where regulated platforms list it.

Always make sure to do your own research and be aware of the above and any other risks before depositing.

How vaults use USDS and sUSDS

sUSDS has become one of the standard building blocks for onchain stablecoin strategies. Its rate is transparent, its backing is visible position by position, and it redeems to USDC through the PSM in one transaction. Lending markets accept it as collateral and fixed-rate markets such as Pendle split it into principal and yield tokens. A curated stablecoin vault can hold sUSDS as a floor rate on idle cash, lend USDS on markets where borrowing demand pushes the rate above the SSR, or accept sUSDS as collateral in isolated lending markets it funds.

Where a vault holds USDS, depositors are exposed to the Sky risks above in proportion to that allocation, on top of the vault's own contract and strategy risk. On Upshift, a vault's policy engine restricts the protocols, tokens and functions a curator can use. Whether a vault can touch USDS or sUSDS is set in its rules and visible onchain. Multi-asset vaults can take several stablecoins as deposits while settling every redemption in a single reference asset, and Upshift's vault contracts have been through 11 smart contract audits by 6 independent firms. Upshift's risk management framework sets out how curator permissions and limits apply across vaults on more than 30 chains.

Frequently asked questions

Is USDS the same as DAI?

They're separate tokens issued by the same protocol and backed by the same collateral. DAI converts to USDS 1:1 and back at any time. USDS has access to the higher Sky Savings Rate and an upgradeable contract; DAI's contract is immutable.

What is USDS backed by?

On 27 September 2026, about 52% of its loan coverage was stablecoins such as USDC, 37% was onchain and OTC crypto lending, and the rest was AAA corporate debt, Treasury bills and small credit positions, per Sky's financial dashboard.

Is USDS safe?

It has held close to $1 since launch and its backing is visible onchain, but it carries stablecoin, collateral, governance and smart contract risks. S&P rated Sky Protocol B- in August 2025.

How do I earn yield on USDS?

Deposit it into sUSDS through Sky.money or a supporting app to earn the Sky Savings Rate, 3.60% on 27 September 2026. Other routes include stUSDS, Sky token rewards and lending markets, each with different risks.

Can USDS be frozen?

Not currently. The contract is upgradeable and Sky governance could vote to add a freeze function in the future. DAI can't be frozen.

Is the sUSDS rate guaranteed?

No. Sky governance sets and changes it, and it has moved from 8.75% in early 2025 to 3.60% in September 2026.

What happened to MakerDAO?

It rebranded to Sky in August 2024. The protocol, its contracts and DAI all continue, with USDS and SKY added as upgraded tokens.

Keep reading

• What is Ethena USDe. How the synthetic dollar holds $1 and where sUSDe yield comes from.
• What is PYUSD. PayPal's regulated dollar stablecoin, and how its rewards work.
• The safest stablecoins, compared. Reserves, regulation and freeze powers side by side.
• Stablecoin depegs. What causes them and how past ones played out.