What is Sky (SKY)?
Sky (SKY) is the governance token of Sky Protocol, the decentralized system that issues and manages the USDS stablecoin. Sky Protocol launched in August 2024 as the rebrand and upgrade of MakerDAO, and SKY replaces the earlier MKR governance token.
According to Sky's official documentation, MKR holders can upgrade at a ratio of 1 MKR to 24,000 SKY, and since September 2025 a gradually increasing penalty has applied to late conversions. Sky Protocol is designed so that users can trade, save, and earn rewards without handing over custody of their funds.
How does Sky Protocol work?
Sky Protocol executes its core functions through smart contracts, which are automated agreements written in code. Sky Protocol uses this design to aim for a structure in which no intermediary institution controls user funds at will.
Sky Protocol rests on two tokens with separate jobs. USDS, designed to hold a value of one US dollar, serves saving and payments, while SKY serves community governance.
SkyLink is the Sky Protocol component that connects USDS and related assets to blockchains beyond Ethereum, allowing funds to move across networks.
What is the SKY token used for?
Holders of SKY can vote on major changes to Sky Protocol through its governance process. Sky Protocol is described as having no single CEO; instead, operational decisions are made through votes by the community of SKY holders.
The second use of SKY is staking in the Staking Engine. According to Sky's official materials, SKY staking has no minimum amount and no lockup period, pays rewards such as protocol-generated USDS, and lets stakers borrow USDS against their staked SKY.
What are the strengths and risks of SKY?
Commonly cited strengths of SKY and Sky Protocol include transparency, since the rules are published as code, community-led decision making, and a structure that separates the stablecoin role of USDS from the governance role of SKY. The cross-chain design is also noted as widening where Sky Protocol can be used.
SKY also carries risks that deserve equal attention. These include smart contract vulnerabilities, uncertainty around USDS collateral and peg maintenance, technical risk in cross-chain connections, shifting regulation, the possibility that governance voting power concentrates among a few holders, and the fact that staking reward rules can change through governance decisions. This overview is educational information, not investment advice.
