USDS: price, origin and mechanics.

In 2024 the community behind MakerDAO rebranded the protocol as Sky. Part of that rebrand was the introduction of a new governance token and a new stablecoin, USDS, alongside the existing MKR and DAI. DAI holders could voluntarily convert to USDS at a fixed one-to-one rate.

The underlying mechanics don't change fundamentally: USDS is minted when users lock up collateral — crypto, tokenized treasuries or other assets — in smart contracts and borrow USDS against it. There is no bank holding dollars on the holder's behalf.

Sky positions USDS more explicitly toward broader adoption, with partnerships and reward programs to encourage migration. DAI remains in existence for now, but development effort is shifting to USDS.

Like DAI, USDS has a savings mechanism: the Sky Savings Rate. Locking up USDS in the corresponding contract earns interest, funded by the returns on underlying collateral, including short-term US treasuries via regulated structures and yield on crypto collateral.

USDS collateral is therefore a mix of volatile crypto assets and more stable, yield-bearing instruments. The latter category has grown in recent years and now forms a substantial part of the reserve, giving the protocol a revenue model but also introducing counterparty risk.

Sky publishes the composition of its collateral via a public dashboard, so holders can verify how much backing stands against outstanding USDS and what assets it consists of.

Under MiCA, USDS, like DAI, is treated as a token without a licensed issuer offering redemption at par, which can limit access on EU platforms. Self-custody and swapping on decentralized markets remain possible.

The main risks mirror those of DAI: a sharp drop in crypto collateral can trigger liquidations, governance votes can change collateral rules, and part of the reserve carries counterparty risk via the parties managing the treasuries.

USDS is also still relatively new compared to DAI, so trading depth on some platforms may be smaller, and convertibility between USDS and DAI depends on the continued functioning of the Sky protocol.