Summary
The launch of USDS marks an important step in the Maker ecosystem transition, a cog in the overall Endgame plan, which has evolved throughout the years. LlamaRisk expresses enthusiasm for the potential growth and synergies between Maker and Aave while remaining cautious about the implementation details, as only partial information has been provided on the release of USDS and sUSDS. The current phase is an incentivized activation campaign.
We prepared the brief below for Aave DAO’s consideration, as this marks an important event for Maker, Aave, and DeFi as a whole. Further research and recommendations for onboarding will be provided as more information becomes available.
Key Highlights
- Maker ecosystem transitioning from DAI to USDS as part of the Endgame plan, while DAI remains immutable with no changes planned
- USDS obtainable by upgrading DAI or converting USDC (1:1), with holders earning SKY token rewards (600M annually) and benefiting from Savings Rate
- SKY: new governance token, upgradeable from MKR (24,000 SKY per MKR)
- Sky.money: primary gateway to Sky Ecosystem, planned to be transferred to the new Foundation on the September 18 launch date, with Skybase International managing legal, technical, and marketing aspects
- USDS mintable on Spark.fi with various crypto collaterals (functionality not yet available through interface), 700M SPK rewards allocated; Spark Star plays a significant role in the Sky Ecosystem
- Activation campaign (August 20 - September 18, 2024) subject to legal terms, excludes US, UK, and prohibited jurisdictions, prohibits VPNs and anonymization; the opportunity to claim rewards honored until December 30, 2024
- Expected PSM migration: 1.4B USDC liquidity, 6% estimated yield
- sUSDS contract: UUPS upgradeable, ERC-20, ERC-4626, ERC-2612 compliant, no external oracle, with future upgrade plans for freeze function to ensure global scalability over a multi-month to multi-year timeline, depending on USDS growth
Reveal full USDS brief
Useful Links
Asset Fundamentals
USDS can be generated through two distinct mechanisms: an optional upgrade from DAI or a direct conversion from USDC at a 1:1 ratio.
Holders of USDS tokens will be eligible for SKY token rewards, with an expected annual distribution of 600 million SKY. SKY is a new version of the Maker governance token, which can be obtained by upgrading MKR to SKY at a rate of 24,000 SKY per MKR.
Said upgrades are facilitated through app.sky.money, a gateway to the Sky Ecosystem. The website, sky.money, is designed to enable eligible participants to interact with the Sky Protocol, utilizing USDS to accrue SKY tokens as Native Token Rewards and to benefit from the Savings Rate feature on USDS holdings.
Source: sky.money, September 4th, 2024
Alternative access points
USDS can also be minted on spark.fi with crypto collateral of the user’s choice. Spark has allocated an estimated 700 million SPK tokens annually as rewards for USDS users. However, it is important to note that as of this analysis, app.spark.fi currently needs to provide the functionality to generate USDS tokens directly through its interface.
Source: Source: https://app.spark.fi, September 4th, 2024
Terms of Service Specifics
At present, the website showcases the activation campaign only. As the Legal Terms stipulated, this campaign will run from August 20 to September 18, 2024. Participation in the Campaign necessitates accepting the terms delineated in the Campaign Appendix, the overarching Terms of Use, and the Privacy Policy. The acceptance process involves linking a digital wallet and explicitly acknowledging the binding legal agreements by selecting a checkbox in a pop-up interface. Users must subsequently sign an on-chain message containing a unique identifier, confirming their comprehension and acceptance of the terms.
Upon conclusion of the campaign, participants may claim their rewards. However, eligibility for rewards does not guarantee receipt. The claiming process is subject to Sky’s community-driven governance and may undergo modifications. Additionally, the campaign is time-bound, although the opportunity to claim rewards will be honored until December 30, 2024.
The intricate details of the reward mechanism, encompassing but not limited to the methodology of reward calculation, distribution criteria, and eligibility requirements, fall under the sole purview of Sky (the former MakerDAO) and its governance processes.
Skybase International assumes the role of the entity providing website and interface services, serving as the contractual counterparty to users in the binding agreement. While specific company details are not disclosed in Legal Terms, the choice of governing law (Cayman Islands) and the designation of Cayman courts for dispute resolution (except binding arbitration, also seated in the Cayman Islands) suggest that Skybase International may be incorporated in the Cayman Islands.
Skybase International plays an important role in the ongoing campaign, as the company retains the authority to modify the Campaign terms at any juncture, acting under the direction of Sky governance.
The campaign is exclusively limited to participants outside the United States. Notably, the United Kingdom is among the prohibited jurisdictions, along with countries appearing on FATF blacklists and greylists.
VPN software, proxy servers, or any other privacy or anonymization tools or techniques to circumvent geographical restrictions are strictly prohibited. Robust geo-blocking and VPN-detection measures have been implemented to ensure adherence to these conditions.
Legal Structure Explainer
According to a forum post authored by Rune Christensen, Skybase International operates as a subsidiary entity within a holding structure directly linked with Maker’s founder himself.
Notably, Skybase International is not designed to be a self-sustaining entity. As elucidated by Rune, the company has been specifically funded to manage the multifaceted responsibilities encompassing legal compliance, technical development, and marketing initiatives for sky.money.
As of the scheduled launch date on September 18, plans are in place to transfer the sky.money domain to a newly established Foundation. It is being formed to consolidate and manage all intellectual property holdings associated with the Sky ecosystem. While the Foundation’s formation is still in progress, publicly available information indicates that it intends to delegate the maintenance and operation of the website and application to a separate entity.
Market Dynamics
Sam MacPherson’s post on X implies that USDS will enjoy 1.4b USDC in immediately available liquidity upon successful PSM migration. Assertions were based on the collateral metrics on makerburn.com with an estimated yield of 6% (current DAI savings rate).
Source: makerburn.com, September 4th, 2024
Smart Contract Review
The sUSDS contract uses the UUPS (Universal Upgradeable Proxy Standard) pattern to enable upgradeability. Only authorized admins (wards[address] == 1) can:
- Grant or revoke admin rights (
rely,deny) - Authorize upgrades (
_authorizeUpgrade) - Update contract parameters, e.g., Savings Rate (
file)
getImplementation allows anyone to check the current implementation.
The contract implements key standards:
- ERC-20: Standard token functionality (
totalSupply,balanceOf,transfer,transferFrom) - ERC-4626: Tokenized shares of an underlying asset (USDS) that accrues yield over time (
deposit,mint,withdraw,redeem,convertToShares,convertToAsset) - ERC-2612: Permit functionality for approvals via signatures (EIP-712), saving gas
The drip function updates the rate accumulator (chi) based on the USDS Savings Rate (ssr), determining the savings balance growth over time. It ensures chi only updates when time has passed since the last update (rho).
The contract doesn’t include external Oracle or price feed functionality. The price of sUSDS in terms of USDS is determined by the internal chi value and ssr rate.
Freeze Function
Details on the freeze function are revealed in another blog post by Rune.
USDS will eventually be upgraded to include a freeze function to ensure global scalability, aligning with the industry standard of other major RWA-backed stablecoins. This function will not be integrated at launch, but the token will be designed with upgradeability, allowing for its potential implementation through a governance vote.
The future freeze function is expected to adhere to the rule of law in jurisdictions where Sky needs certainty that the legal system will enforce recourse against RWA collateral. This will enhance the security, stability, and reliability of using large-scale RWA collateral for USDS as it scales.
The timeline for implementing the freeze function spans many months or years, depending on USDS growth. It will be implemented using the decentralized governance and transparent processes of the Sky Atlas to ensure a risk-minimized process with checks and balances, potentially including a decentralized appeals process for controversial cases.
Importantly, DAI will not undergo similar changes due to its technical immutability.