S&P Global Assigns 'B-' Rating to Sky Protocol Amid Centralization Concerns

S&P Global Ratings has made a historic move by assigning a 'B-' credit rating to Sky Protocol, according to TheBlock. This marks the first time a credit rating has been assigned to a DeFi stablecoin, reflecting S&P's recognition of the growing relevance of decentralized finance within the global financial system.

The 'B-' rating underscores significant concerns regarding Sky Protocol's centralized governance structure, where co-founder Rune Christensen holds 9% of governance tokens. This concentration of control, coupled with low voter turnout among token holders, raises questions about the protocol's true level of decentralization. S&P identified liquidity risks stemming from a concentration of large depositors, which could destabilize the system if significant withdrawals occur.

The agency noted that the protocol's risk-adjusted capital ratio of 0.4% and its underdeveloped static surplus reserve mechanism further contribute to its credit risk profile. S&P also warned of potential downgrades within the next 12 months due to potential smart contract vulnerabilities, regulatory shifts, or market shocks such as liquidity crunches.

However, the agency did express a cautious optimism about Sky Protocol's long-term prospects, citing its operational resilience since 2020. Improvements in governance decentralization, capital adequacy, and deposit diversification could lead to a stronger credit rating in the future.

Note: This is intended for informational purposes only and does not in any way constitute or solicit financial, professional, or legal advice. Readers are reminded to carefully conduct their own due diligence at all times.

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Source(s): https://www.theblock.co/post/366106/sp-global-sky-protocol