Incredible, the veteran DeFi protocol MakerDAO reported a loss of 5 million USD in the first quarter.

Author: Tim Craig & Sheldon Reback, CoinDesk Author

Compiled by: Rhythm Little deep

Editor’s note: The DeFi savings protocol Sky (formerly MakerDAO) recorded a loss of $5 million in the first quarter of 2025, contrasting sharply with a profit of $31 million in the previous quarter. The loss was primarily due to incentives for using the new stablecoin USDS instead of DAI, leading to a 102% surge in interest payments. Although USDS aims to attract seasoned investors, its user base growth remains unclear, and the protocol's profitability is hampered by high interest rates.

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TL;DR

· The DeFi savings protocol Sky (formerly MakerDAO) reported a loss of 5 million USD in the first quarter, a significant decline from a profit of 31 million USD in the previous quarter.

· To encourage users to use the new stablecoin USDS instead of DAI, the protocol has increased interest payments to depositors by 102%.

· Despite the launch of USDS to attract sophisticated investors, it remains unclear whether it has significantly expanded Sky's user base.

Sky co-founder Rune Christensen (original image provided by Trevor Jones)

According to a report by Sky contributor Steakhouse Financial, the DeFi savings protocol Sky lost 5 million dollars in the first quarter, due to interest payments to token holders doubling.

This loss stands in stark contrast to the previous quarter when Sky recorded a profit of $31 million. The 102% increase in interest payments is due to the protocol's decision to incentivize users to use the newer Sky Dollar stablecoin (USDS) instead of the existing DAI.

"Sky's savings rate remains at 12.5%, which is very high compared to other parts of the market, attracting a large influx of funds," said Sky co-founder Rune Christensen via Telegram to CoinDesk. He mentioned that many investors chose to stay even when Sky lowered the rate to 4.5% in February.

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

Sky operates similarly to traditional banks. It needs to lend to others at a rate higher than the interest paid to depositors.

However, providing higher interest rates without a corresponding increase in USDS demand is harming the profitability of the protocol, said PaperImperium, the governance liaison of blockchain research and development firm GFX Labs, via Telegram to CoinDesk.

"USDS significantly burdens returns," he said. "DAI makes money, but USDS does not."

Promoting USDS is part of Sky's so-called "final plan," which is led by Christensen and aims to transform the protocol into a more decentralized and resilient system.

No new demand?

When Sky rebranded from MakerDAO and launched USDS in August as part of its final plan, the intention was for the new stablecoin to attract a different user base than DAI.

USDS is designed to better comply with regulatory and financial reporting requirements, aiming to attract sophisticated institutional investors such as hedge funds, family offices, and others looking to enter decentralized finance.

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

The returns available to investors on USDS and DAI are different: USDS pays a yield of 4.5%, while DAI offers 2.75%.

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

The report states that since the beginning of this quarter, the total amount of USDS and DAI has increased by 57%. However, a large part of this growth comes from the synthetic dollar protocol Ethena, which has injected over $450 million into staked USDS and passed the earnings on to users who stake 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 means that the circulating USDS will decrease. However, it may also benefit Sky by reducing the amount of interest that the protocol has to pay.