#show-card ## Overview [[Sky]] is a decentralized autonomous organization ([[DAO]]) built on the [[Ethereum]] blockchain. Its core mission is to create and manage Dai, a decentralized, collateral-backed [[Stablecoin]] soft-pegged to the US Dollar. Sky aims to provide a stable and transparent currency for the global digital economy, addressing the inherent volatility of most cryptocurrencies. By enabling users to generate Dai against locked collateral, Sky provides a crucial building [[Block|block]] for the [[Decentralized finance]] ([[DeFI|DeFi]]) ecosystem, offering a reliable medium of exchange, store of value, and unit of account. The project was founded by Rune Christensen and officially launched in December 2017, making it one of the earliest and most influential projects in the DeFi space. Key milestones include the initial launch of Single-Collateral Dai (Sai), which only accepted Ether as collateral, and the subsequent upgrade to Multi-Collateral Dai (MCD) in November 2019, which allowed for a variety of collateral types to back Dai, enhancing its stability and scalability. Sky's unique benefits stem from its decentralized governance structure, where holders of the MKR token collectively manage the protocol. This includes setting risk parameters, approving new collateral types, and adjusting stability fees. Dai itself is over-collateralized, meaning the value of the assets locked in Sky Vaults exceeds the value of the Dai generated, providing a buffer against price volatility of the collateral. All operations and the state of the system are transparently recorded on the Ethereum blockchain. To get started with Sky, consider the following resources: | Resource Type | Link | | :------------------- | :----------------------------------------------------------------------- | | Official Website | [https://makerdao.com](https://makerdao.com) | | Documentation | [https://docs.makerdao.com](https://docs.makerdao.com) | | Governance Forum | [https://forum.makerdao.com](https://forum.makerdao.com) | | Governance Portal | [https://vote.makerdao.com](https://vote.makerdao.com) | | Community (Reddit) | [https://www.reddit.com/r/MakerDAO/](https://www.reddit.com/r/MakerDAO/) | | GitHub Repository | [https://github.com/makerdao](https://github.com/makerdao) | | Oasis.app (Frontend) | [https://oasis.app](https://oasis.app) | ## Key Services/Features Sky offers several core components and features that work together to maintain the Dai Stablecoin and govern the protocol. ### Dai Stablecoin Dai is a decentralized, unbiased, collateral-backed Stablecoin soft-pegged to the US Dollar. Its stability is achieved through a system of over-collateralization, autonomous [[Smart contract|Smart contracts]], and decentralized governance. Users generate Dai by locking up accepted collateral assets (such as ETH, WBTC, and others) into Sky Vaults. This process is permissionless and accessible to anyone. Dai serves numerous purposes in the [[Web3]] ecosystem, including as a reliable medium of exchange, a stable store of value, collateral in other DeFi applications, and a unit of account for decentralized applications. You can find more details in the [official Dai documentation](https://docs.makerdao.com/dai-handbook/). ### MKR Token The MKR token is the governance token of the Sky Protocol. Holders of MKR can participate in the decision-making processes that govern the system. This includes voting on critical parameters such as collateral types eligible for backing Dai, stability fees for borrowing Dai, debt ceilings for different collateral types, and upgrades to the protocol. Beyond its governance role, MKR also serves as a recapitalization resource. If the collateral backing Dai becomes insufficient due to extreme market volatility leading to under-collateralized Vaults, MKR tokens can be automatically minted and sold on the open market to cover the deficit and restore the system's solvency. Conversely, surplus fees generated by the protocol can be used to buy back and burn MKR, reducing its supply. More information can be found on the [MKR token page](https://makerdao.com/en/mkr/). ### Sky Vaults Sky Vaults, previously known as Collateralized Debt Positions (CDPs), are Smart contracts where users can deposit collateral assets and generate Dai. Each Vault is unique to the user and the type of collateral deposited. To generate Dai, a user must lock up an amount of collateral that exceeds the value of Dai they wish to create, maintaining a specific minimum collateralization ratio. If the value of the collateral falls below this ratio, the Vault is subject to liquidation, where the collateral is sold to cover the outstanding Dai debt plus a penalty. Users can retrieve their collateral at any time by repaying the generated Dai along with the accrued stability fee. Vaults provide a way for users to gain [[Liquidity]] without selling their crypto assets. Users typically interact with Vaults through user-friendly frontends like [Oasis.app](https://oasis.app). ### Governance Portal The Sky Governance Portal, accessible at [vote.makerdao.com](https://vote.makerdao.com), is the platform where MKR token holders exercise their governance rights. Through this portal, MKR holders can propose and vote on Governance Polls to gauge community sentiment on various issues, and on Executive Votes, which are Smart contracts that implement changes to the Sky Protocol if passed. This decentralized governance mechanism is fundamental to the adaptability and long-term sustainability of Sky. ### Dai Savings Rate (DSR) The Dai Savings Rate (DSR) allows Dai holders to earn savings by locking their Dai into a specific Smart contract within the Sky Protocol. The DSR is determined by MKR governance and serves as a monetary policy tool. By adjusting the DSR, Sky governance can influence the demand for Dai. An increase in the DSR typically incentivizes users to hold Dai and lock it in the DSR contract, reducing its [[Circulating supply|circulating supply]] and potentially increasing its price. Conversely, a decrease in the DSR may reduce the incentive to hold Dai, potentially increasing its supply in the market. This mechanism helps maintain Dai's soft peg to the US Dollar. ## Comparative Analysis Dai distinguishes itself from other Stablecoins primarily through its decentralization, transparency, and collateralization model. | Feature | Dai (Sky) | Centralized Stablecoins (e.g., USDT, USDC) | Algorithmic Stablecoins (e.g., TerraUSD - UST, now defunct) | Other Decentralized Collateralized (e.g., LUSD) | | :------------------ | :----------------------------------------------------------------------- | :----------------------------------------------------------- | :----------------------------------------------------------------------------------------- | :---------------------------------------------------------------------- | | Backing | Over-collateralized by crypto assets (ETH, WBTC, etc.) | Backed by fiat reserves (USD, etc.) held by a central entity | Relied on algorithms and arbitrage incentives to maintain peg; some had partial collateral | Over-collateralized by a single crypto asset (e.g., ETH for LUSD) | | Issuance | Decentralized, via Sky Vaults | Centralized issuance by a single entity | Algorithmic, or through mint/burn mechanisms with a paired token | Decentralized, via individual borrowing operations | | Governance | Decentralized via MKR token holders | Centralized, by the issuing company | Often decentralized to some extent, but can have points of failure | Decentralized, often with a focus on immutability or minimal governance | | Transparency | High, on-chain verification of collateral | Lower, relies on attestations/audits | Varies, code is open but actual backing can be opaque | High, on-chain verification | | Counterparty Risk | Smart contract risk, [[Oracle]] risk | Custodial risk, [[Regulation]] risk | Algorithmic risk, de-pegging risk | Smart contract risk, Oracle risk | | Stability Mechanism | Over-collateralization, Stability Fees, DSR, Liquidation, MKR governance | Fiat reserves, market operations | Arbitrage, seigniorage, burn/mint mechanisms | Over-collateralization, liquidation, stability pool | Dai's model, while robust, involves Smart contract risks and reliance on Oracles for price feeds. However, its commitment to decentralization and community governance has made it a cornerstone of the DeFi ecosystem. Compared to centralized Stablecoins, Dai offers greater transparency and censorship resistance. Unlike purely algorithmic Stablecoins, which have historically faced significant stability challenges, Dai's over-collateralization provides a more tangible backing.