The Maker Protocol White Paper: An Overview of Sky Ecosystem and Stablecoins

Introduction

Launched in 2015 as the Sky project (formerly MakerDAO), the Maker Protocol has evolved into a cornerstone of decentralized finance (DeFi) on the Ethereum blockchain. The first formal white paper, published in December 2017, introduced the original Dai Stablecoin System—now known as Sai or Single-Collateral Dai (SCD). This system allowed users to generate Dai by leveraging Ethereum (ETH) as collateral through Collateralized Debt Positions (CDPs).

By November 2019, the protocol expanded to support multiple collateral types, marking a pivotal upgrade. Since then, the Sky Ecosystem has grown through decentralized governance, with contributors worldwide refining its core components: the Multi-Collateral Dai (MCD) system, stablecoins (Dai and USDS), and vaults.

Sky Protocol: Features and Decentralized Governance

Key Features

• Decentralized Finance (DeFi) Pioneer: Sky Protocol is among Ethereum’s largest dapps, enabling users to generate stablecoins backed by diverse collateral.
• Governance by MKR Holders: Managed via a scientific governance framework, including Executive Voting and Governance Polls. Each MKR token equals one vote, ensuring transparency and risk management.

The Dai Stablecoin

Dai is a decentralized, collateral-backed cryptocurrency pegged to the US Dollar. Users generate Dai by depositing assets into Sky Vaults, accessing liquidity without intermediaries.

Properties of Dai as Money:

1. Store of Value: Stability in volatile markets.
2. Medium of Exchange: Global transactional use.
3. Unit of Account: Priced at 1 Dai = 1 USD.
4. Standard of Deferred Payment: Settles debts within the protocol.

Collateral Assets and Vaults

Accepted Collateral

Sky Protocol accepts Ethereum-based assets approved by governance, with tailored Risk Parameters (e.g., Liquidation Ratios) for each asset.

Sky Vaults

• Non-Custodial: Users retain control of collateral.
• Liquidation Mechanism: Under-collateralized vaults trigger auctions to maintain system solvency.

How to Interact with a Vault:

1. Deposit collateral.
2. Generate Dai.
3. Repay debt + Stability Fee.
4. Withdraw collateral.

👉 Explore Sky Vaults

USDS Stablecoin: Sky’s New Era

Launched in 2024, USDS shares Dai’s decentralized, collateral-backed design but introduces potential upgrades:

• Freeze Functionality: For enhanced regulatory compliance (not yet active).
• Converter Contract: Swap between DAI and USDS seamlessly.

Acquiring USDS:

• Via Sky Savings Rate (SSR).
• Third-party exchanges.

RWA Vaults: Bridging Traditional and Decentralized Finance

Real-World Assets (RWAs)

Tokenized off-chain assets (e.g., bonds, real estate) diversify Sky’s collateral portfolio.

How RWA Vaults Work

• Smart Contracts: Governed by Sky Ecosystem.
• Liquidation Process: Off-chain, with manual oversight.

Future Outlook:
Stars (independent projects within Sky) will manage RWAs via the Allocation System, optimizing risk-adjusted returns.

Key External Actors

1. Keepers: Market-makers ensuring Dai’s peg.
2. Oracles: Provide real-time collateral prices.
3. Emergency Oracles: Safeguard against attacks.

Dai Savings Rate (DSR)

• Earn Interest: Lock Dai into the DSR contract.
• Adjustable Rate: Governance modifies DSR to stabilize Dai’s market price.

In 2024, Sky introduced the Sky Savings Rate for USDS, coexisting with DSR.

Governance and Risk Management

MKR Token’s Roles

• Voting: Propose and approve protocol changes.
• Recapitalization: MKR minted during debt auctions.

Risk Parameters

• Debt Ceiling
• Stability Fee
• Liquidation Ratio

Mitigating Risks:

• Formal verification and audits.
• Emergency Shutdown as a last resort.

Price Stability Mechanisms

Emergency Shutdown

1. Freeze Protocol: Withdraw collateral.
2. Auctions: Sell liquidated assets.
3. Dai Claims: Holders receive collateral at Target Price (1 USD).

FAQ Section

How is Dai different from USDS?

Dai is the original stablecoin; USDS may include a freeze function for regulatory compliance.

What happens if my vault is liquidated?

Collateral is auctioned; leftover funds return to the owner.

How does governance vote on changes?

Via MKR tokens in Executive Voting and Governance Polls.

👉 Learn more about Sky Governance

Appendix

Resources

• Sky Ecosystem Website
• Governance Portal
• Developer Docs

### Key Improvements:  
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2. **Structure**: Clear headings and logical flow.  
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