Crucial Sky Token Upgrade Targets Maker Token, Unlocks DeFi Staking

The decentralized finance (DeFi) landscape is constantly evolving, and major protocols like Sky are making significant moves to enhance their infrastructure and tokenomics. A crucial Sky token upgrade is now on the table, aiming to finalize the protocol’s transition away from its origins.

Introducing the Sky Token Upgrade Proposal

Sky, formerly known as MakerDAO, has put forth a significant DAO proposal to its community. The core of this proposal is to complete the protocol’s upgrade by fully transitioning from the legacy Maker token (MKR) to the new Sky token (SKY) as the sole governance token.

Here’s a breakdown of the key points in the proposal:

• The Sky (SKY) token would officially replace the Maker (MKR) token for all governance functions.
• The change is tentatively scheduled to occur between May 15 and May 19.
• Once the transition begins, the ability to convert SKY back to MKR would be permanently disabled, making the upgrade a one-way process.

Sky co-founder Rune Christensen has voiced strong support for this move, calling it a “huge milestone.” He highlighted that the ability for users to downgrade from SKY back to MKR has been a major hurdle preventing cryptocurrency exchanges from fully adopting and listing the SKY token. A completed, one-way transition is expected to simplify exchange integration and consolidate liquidity.

Incentivizing the Switch from Maker Token

To encourage existing Maker token holders to migrate to the new SKY token promptly, the proposal includes a mechanism for delayed upgrade penalties. Starting on September 18, a 1% penalty would be applied to any MKR to SKY upgrades, with this penalty increasing every three months thereafter. Users upgrading late would receive fewer SKY tokens in exchange for their MKR.

Unlocking the Potential of DeFi Staking

Perhaps one of the most anticipated aspects of this upgrade is the enabling of DeFi staking for the SKY token. Rune Christensen emphasized this as a vital component of the proposed changes.

Key details about the staking feature:

• SKY staking will allow token holders to earn rewards.
• Rewards will be derived from the income generated by the Sky Protocol.
• Rewards for the protocol’s decentralized stablecoin, USDS, are expected to be enabled two to three weeks after the governance contract upgrade, with a 50% splitter rate.

Christensen noted that finalizing the MKR to SKY upgrade is one of the final steps before Sky can move towards a model of 0 fixed costs by the end of 2025. This shift is intended to ensure that a larger portion of the protocol’s income flows back to the community through SKY buybacks or staking rewards, further enhancing the value proposition of DeFi staking within the Sky ecosystem.

Navigating the Transition and Crypto Governance

During the initial phase of the one-way MKR to SKY transition, the proposal also suggests temporarily disabling SKY liquidations. This measure is considered necessary to protect against potential price manipulation of both the SKY and MKR tokens while the transition is underway and market liquidity for SKY is being established. Once SKY market liquidity is restored, Sky Governance will review and lift the liquidation freeze, adjusting risk parameters back to long-term targets.

This move is part of Sky’s broader evolution, following its rebranding from MakerDAO last year. Although the rebranding initially caused confusion, a subsequent poll confirmed tokenholder support for retaining the Sky brand for the backend protocol. This latest DAO proposal reinforces the commitment to the Sky identity and aims to solidify the protocol’s foundation through streamlined crypto governance under the single SKY token.

Summary

Sky’s proposal to finalize its token upgrade by ousting the Maker token and fully embracing the SKY token marks a significant step in its development. By disabling the MKR to SKY downgrade and introducing penalties for delays, the protocol aims to accelerate the transition and improve exchange adoption. Crucially, this upgrade paves the way for DeFi staking, allowing SKY holders to earn rewards from the protocol’s income. While a temporary liquidation pause is planned to manage transition risks, the overall goal is to simplify crypto governance and position Sky for future growth and efficiency, solidifying the vision outlined in the latest DAO proposal.