Sky, the DeFi protocol formerly known as MakerDAO, is under pressure from its community after co-founder Rune Christensen confirmed last month the protocol’s upcoming USDS stablecoin could feature a freeze function sometime in the future.
Although the function will not be enabled at launch on Sept. 18, the idea of including the mechanism has sparked concern about the centralization of Sky’s ecosystem.
Christensen, addressing recent concerns in an interview with Decrypt during Korea’s Blockchain Week in Seoul on Wednesday, defended the freeze function as a necessary tool for regulatory compliance in jurisdictions where real-world assets back the stablecoin.
“You have to use real-world assets as a means of scaling the system,” Christensen said.
The idea is that using real-world assets for collateralization helps stabilize and grow the protocol by anchoring the stablecoin to tangible assets, making it more scalable and accessible to mainstream users.
Other major stablecoins, including Tether’s USDT and Circle’s USDC, have long had the ability to freeze transactions to specific wallet addresses. The mechanism is intended to comply with regulatory requirements or respond to suspicious activity.
Christensen explained that as a DeFi project grows and integrates real-world assets, it inevitably must engage with governments and legal systems to ensure asset protection.
As a result, there’s no way around having to “come to terms” with relying on governments and legal jurisdictions to protect a project’s assets, he said.
He also stressed that any decision to activate the freeze function would be governance-driven, allowing the community to vote on its implementation—a point he made last month following the project’s rebranding in late August following community pushback.
To the stars
It comes as Sky has introduced a new governance model based on subDAOs—autonomous entities rebranded as Sky Stars, that allows the protocol to specialize in regional compliance while supposedly maintaining its decentralized infrastructure.
Each Star operates independently, managing its own governance, treasury, and specialization while still being part of the broader Sky protocol.
“There’s going to be a much greater and more diverse ability to accommodate different regulatory conditions in different markets,” Christensen said.
The protocol is also launching sky.money, an app designed to make DeFi “more accessible” to mainstream users.
It’s hoped the move will lower barriers for those unfamiliar with decentralized platforms by offering access to features like Sky Savings Rate and Sky Token Rewards.
Users who hold USDS will be able to earn a 6% annual interest through the savings rate, a passive income feature that incentivizes participation.
Meanwhile, the token rewards will provide additional incentives in the form of SKY tokens, offering users further financial rewards for engaging with the protocol’s governance or upgrading from Dai to USDS.
Despite these new features, Christensen clarified that users are not required to migrate from Dai to USDS. Dai and MKR will continue to exist, with liquidity shared between them and the new tokens.
This will supposedly ensure those satisfied with the current system can continue using it without disruption. At the same time, users seeking additional benefits can engage with the upgraded USDS and Sky features, Christensen said.
“The more you can integrate with the existing system and abstract away the blockchain element, the easier it is for people to use and get the benefits,” the co-founder said. “But that’s also when you start to have to deal more with regulation.”